As filed with the Securities and Exchange Commission on October 10, 1997
Registration No. 333-31103
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-4
AMENDMENT NO. 2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
SUN WORLD INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 0100 95-3554353
(State or other (Primary Standard (IRS Employer)
jurisdiction of Industrial Identification No.)
incorporation Classification
or organization) Code Number)
16350 Driver Road
Bakersfield, California 93308
(805) 392-5000
(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
ADDITIONAL REGISTRANTS
Primary
Standard
Indus- IRS
trial Employer
Class- Identi-
Jurisdiction ifica- fica-
Name of of tion tion
Registrant Incorporation Number Number Address and Telephone Number
- ----------- ------------- ------ ---------- ----------------------------
Cadiz Land
Company, Inc. Delaware 0100 77-0313235 100 Wilshire Blvd.,
16th Floor,
Santa Monica,
California 90401-1115
(310) 899-4700
Coachella
Growers, Inc. California 0100 95-2223064 Same as for Sun World
International, Inc.
("Sun World")
Sun Desert, Inc. Delaware 0100 95-3588618 Same as for Sun World
Sun World Brands California 0100 95-3373568 Same as for Sun World
Sun World
Management Corp. California 0100 95-3242011 Same as for Sun World
Sun World/Rayo California 0100 95-3446110 Same as for Sun World
Agri-Land
Realty, Inc. California 0100 95-2822019 Same as for Sun World
Big Valley
Leasing, Inc. Delaware 0100 95-3549426 Same as for Sun World
Dinuba Packing
Corporation California 0100 95-3244389 Same as for Sun World
Pacific Farm
Service, Inc. California 0100 04-2468419 Same as for Sun World
SFC Marketing
Corporation California 0100 77-0115197 Same as for Sun World
Sun Harvest, Inc. Delaware 0100 95-3549427 Same as for Sun World
Sun World Avocado California 0100 95-3311302 Same as for Sun World
Sun World
Export, Inc. California 0100 95-3309900 Same as for Sun World
Timothy J. Shaheen
16350 Driver Road
Bakersfield, California 93308
(805) 392-5000
(Name, address, and telephone number of agent for service)
FOR CADIZ LAND COMPANY, INC. ONLY:
Keith Brackpool
100 Wilshire Boulevard, 16th Floor
Santa Monica, California 90401-1115
(310) 899-4700
(Name, address, and telephone number of agent for service)
Copies of communications to:
HOWARD J. UNTERBERGER, ESQ.
LISA HAMILTON KLEIN, ESQ.
Miller & Holguin
1801 Century Park East, Seventh Floor
Los Angeles, California 90067
(310) 556-1990
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration
Statement and all other conditions to the exchange offer pursuant to
the registration rights agreement described in the enclosed
Prospectus have been satisfied or waived.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is
compliance with General Instruction G, please check the following
box. / /
====================================================================
CALCULATION OF REGISTRATION FEE
Title of Amount to Proposed Proposed Amount of
each class be Maximum Maximum Registration
of Securities Registered Offering Aggregate Fee
to be Price Per Offering
Registered Note Price
- -------------------------------------------------------------------
11-1/4% $115,000,000 100%(1) $115,000,000(1) $34,848.48(2)
Series B
First
Mortgage
Notes due
2004
Guarantees
of the $115,000,000(3)
11-1/4%
Series B
First Mortgage
Notes
due 2004
- ------------------------------------------------------------------
(1) Estimated solely for purposes of calculating the registration fee
(2) This Registration Statement as originally filed on May 11, 1997
covered the sale of $115,000,000 in 11-1/4% Series B First
Mortgage Notes due 2004, for which a Registration fee of
$34,848.48 was paid. This Amendment No. 2 covers no additional
Notes and, therefore, results in no additional fee.
(3) Pursuant to Rule 457(n) under the Securities Act of 1933, no
separate registration fee is payable for the Guarantees
- ------------------- __________________________
The Registrants hereby amend this Registration Statement on such
date or dates as may be necessary to delay its effective date until
the Registrants shall file a further amendment which specifically
states that this Registration Statement shall thereafter become
effective in accordance with Section 8(a) of the Securities Act of
1933 or until the Registration Statement shall become effective on
such date as the Commission, acting pursuant to said Section 8(a),
may determine.
=====================================================================
SUBJECT TO COMPLETION, DATED OCTOBER__, 1997
Information contained herein is subject to completion or
amendment. A registration statement relating to these securities has
been filed with the Securities and Exchange Commission. These
securities may not be sold nor may offers to buy be accepted prior to
the time the registration statement becomes effective. This
prospectus shall not constitute an offer to sell or the solicitation
of an offer to buy nor shall there be any sale of these securities in
any state in which such offer, solicitation or sale would be unlawful
prior to registration or qualification under the securities laws of
any such state.
PROSPECTUS
SUN WORLD INTERNATIONAL, INC.
This Prospectus describes an offer to Exchange up to $115,000,000 of
11-1/4% Series B First Mortgage Notes due 2004, which have been registered
under the Securities Act of 1933, for $115,000,000 of outstanding 11-1/4%
Series A First Mortgage Notes due 2004. The notes to be so exchanged will
be fully and unconditionally guaranteed, jointly and severally, by
Cadiz Land Company, Inc. Coachella Growers, Inc., Sun Desert, Inc.,
Sun World Brands, Sun World Management Corp., Sun World/Rayo, Agri-Land
Realty, Inc., Big Valley Leasing, Inc., Dinuba Packing
Corporation, Pacific Farm Service, Inc., SFC Marketing Corporation,
Sun Harvest, Inc., Sun World Avocado and Sun World Export, Inc.
The Exchange Offer will expire at 5:00 P.M., New York City time,
on_______________, 1997, unless extended (the "Expiration Date").
------------------
Sun World International, Inc. ("Sun World")hereby offers to exchange
(the "Exchange Offer") up to $115,000,000 aggregate principal amount
of its 11-1/4% Series B First Mortgage Notes due 2004 (the "Exchange
Notes") for $115,000,000 aggregate principal amount of its outstanding
11-1/4% Series A First Mortgage Notes due 2004 (the "Old Notes").
In this Prospectus, the term "Notes" shall refer to both Old Notes and
Exchange Notes.
The Exchange Notes will evidence the same indebtedness as the
Old Notes for which they may be exchanged pursuant to this offer.
The terms of the Exchange Notes will be identical in all material
respects (including principal amount, interest rate and maturity) to
the terms of the Old Notes for which they may be exchanged, except
that the Exchange Notes will be freely transferable by holders
thereof (other than as provided below) and will be issued without
rights for any further registered exchange offer, and will not
include various rights to liquidated damages held by holders of the
Old Notes.
Interest on the Exchange Notes will be payable semi-annually on
April 15 and October 15 of each year, commencing October 15, 1997.
The Exchange Notes will mature on April 15, 2004.
The Exchange Notes will be unconditionally guaranteed (the
"Cadiz Guarantee") by Cadiz Land Company, Inc., the parent of Sun
World ("Cadiz") and by Coachella Growers, Inc., Sun Desert, Inc.,
Sun World Brands, Sun World Management Corp., Sun World/Rayo, Agri-
Land Realty, Inc., Big Valley Leasing, Inc., Dinuba Packing
Corporation, Pacific Farm Service, Inc., SFC Marketing Corporation,
Sun Harvest, Inc., Sun World Avocado and Sun World Export, Inc.,
all of which are subsidiaries of Sun World (the "Subsidiary
Guarantors" and, together with Cadiz, the "Guarantors").
The Exchange Notes, the Subsidiary Guarantees and the Cadiz Guarantee
will be secured by a first priority lien, subject to Permitted Liens,
on the Collateral. The Collateral, as defined, consists of all of the
assets of Sun World, the Subsidiary Guarantors, and Cadiz, respectively,
except Excluded Assets. Excluded Assets include, as to Cadiz, all of the
assets of Cadiz other than the outstanding stock of Sun World. Excluded
Assets include, as to Sun World and the Subsidiary Guarantors,
(i) Revolving Creit Agreement Collateral (i.e. all of Sun World's and
its Subsidiary Guarantors' cash and cash equivalents, accounts receivables
and growing crops), which secures the $30.0 million Revolving Credit
Agreement entered into concurrently with the issuance of the Old Notes,
(ii) any Proceeds (as defined in the Uniform Commercial Code in effect
in the State of California ("UCC")) or products arising out of Revolving
Credit Agreement Collateral, (iii) rights to payment of money or Chattel
Paper (as defined in the UCC) arising from the sale of Revolving Credit
Agreement Collateral or insurance proceeds payable in respect of
Revolving Credit Agreement Collateral, except to the extent that any
such Proceeds or products (including money and Chattel Paper) constitute
or are deemed to constitute Collateral Proceeds, (iv) Zenith Collateral
(i.e. an undivided one-half interest in 4,222 acres of farm property
located near Blythe, California), which secures $2.4 million of
pre-existing Sun World indebtedness and (v) certain other assets of the
Issuer and its Subsidiaries, the value of which is immaterial in the
aggregate, as set forth in the Collateral Documents. All of the crops
of Sun World and its Subsidiary Guarantors are included within either
the Collateral or the Revolving Credit Agreement Collateral, but not
both. The Collateral includes all crops (i.e. trees and vines) which
are not considered growing crops (i.e. the bloom or fruit to be harvested
from such trees and vines), while the Revolving Credit Agreement Collateral
includes growing crops, but not the trees and vines upon which such growing
crops are grown.
As the Cadiz Guarantee and the Subsidiary Guarantees are full and
unconditional, such Guarantees will not be subject to limitation
notwithstanding the existence of or enforcement by holders of the
Exchange Notes of their security interests in the Collateral. In
addition, since the obligations of the Guarantors are joint and
several, the Cadiz Guarantee is, in effect, also secured by all of
the assets of Sun World and of the Subsidiary Guarantors except for
Excluded Assets, and the Subsidiary Guarantees are, in effect, also
secured by the stock of Sun World.
The Exchange Notes and the Guarantees will rank pari passu in
right of payment with all existing and future unsubordinated
indebtedness of Cadiz, Sun World and the Subsidiary Guarantors,
respectively, except to the extent of any collateral which may be
pledged to secure other indebtedness. As of June 30, 1997, Cadiz,
Sun World and the Subsidiary Guarantors, taken as a consolidated group,
had approximately $30.7 million of unsubordinated indebtedness (of
which approximately $19.3 million was secured by Excluded Assets of
Sun World and $9.7 million was secured by certain assets of Cadiz and
which $29.0 million of unsubordinated indebtedness constitutes the
dollar amount of debt to which the Exchange Notes are effectively
subordinated).
The Exchange Notes will be redeemable in cash at the option of
Sun World, in whole or in part, at any time on or after April 15,
2001 at the redemption prices set forth herein, plus accrued and
unpaid interest, if any, to the redemption date. Subject to certain
conditions and limitations, in the event of a Change of Control,
Sun World will be obligated to make an offer to purchase all of the
then outstanding Exchange Notes at a purchase price equal to 101% of
the principal amount thereof, plus accrued and unpaid interest, if any,
to the purchase date. There can be no assurance that Sun World will
have sufficient funds to purchase all such Exchange Notes upon a Change
of Control. In addition, Sun World will be obligated to make an offer
to purchase Exchange Notes in the event of certain asset sales.
See "Description of Exchange Notes."
The Old Notes were issued and sold on April 16, 1997 in
transactions not registered under the Securities Act of 1933, as
amended (the "Securities Act"), in reliance upon the exemption
provided in Section 4(2) of the Securities Act. Accordingly, the
Old Notes may not be re-offered, resold or otherwise pledged,
hypothecated or transferred in the United States unless so
registered or unless an applicable exemption from the registration
requirements of the Securities Act is available. The Exchange Notes
are being offered hereunder in order to satisfy certain of the
obligations of Sun World under a registration rights agreement
relating to the Old Notes. See "The Exchange Offer--Purpose of the
Exchange Offer." Sun World is making the Exchange Offer in reliance
upon an interpretation by the staff of the Securities and Exchange
Commission set forth in a series of no-action letters issued to
third parties. See Exxon Capital Holdings Corp. (available April
13, 1989), Morgan Stanley & Co. Incorporated (available July 5,
1991) and Shearman & Sterling (available June 2, 1993). Based on
such interpretation, Sun World believes that Exchange Notes issued
pursuant to the Exchange Offer in exchange for Notes may be offered
for resale, resold and otherwise transferred by any holder thereof
(other than any such holder that is an "affiliate" of Sun World
within the meaning of Rule 405 under the Securities Act) without
compliance with the registration and prospectus delivery provisions
of the Securities Act, provided that such Exchange Notes are
acquired in the ordinary course of such holder's business, such
holder has no arrangement with any person to participate in the
distribution of such Exchange Notes and neither such holder nor any
such other person is engaging in or intends to engage in a
distribution of such Exchange Notes. However, Sun World has not
sought, and does not intend to seek, its own no-action letter, and
there can be no assurance that the staff of the Securities and
Exchange Commission would make a similar determination with respect
to the Exchange Offer. Each broker-dealer that receives Exchange
Notes for its own account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in connection with any
resale of such Exchange Notes. The Letter of Transmittal relating
to the Exchange Offer states that by so acknowledging and by
delivering a prospectus, a broker-dealer will not be deemed to admit
that it is an "underwriter" within the meaning of the Securities
Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with
resales of Exchange Notes received in exchange for Notes where such
Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities. Any
broker-dealer that received Old Notes from Sun World in the offering
of the Old Notes and not as a result of market-making or other
trading activities cannot participate in the Exchange Offer. See
"Plan of Distribution."
The Old Notes are designated for trading in the Private
Offerings, Resales and Trading through Automated Linkages ("PORTAL")
market. The Exchange Notes constitute securities for which there is
no established trading market. Any Old Notes not tendered and
accepted in the Exchange Offer will remain outstanding. Sun World
intends to designate the Exchange Notes for trading in the PORTAL
market. To the extent that any Old Notes are tendered and accepted
in the Exchange Offer, a holder's ability to sell untendered Old
Notes could be adversely affected. No assurance can be given as to
the liquidity of the trading market for either the Old Notes or the
Exchange Notes.
The Exchange Offer is not conditioned upon any minimum aggregate
principal amount of Old Notes being tendered for exchange. The date
of acceptance and exchange of the Old Notes (the "Exchange Date")
will be the first business day following the Expiration Date. Old
Notes tendered pursuant to the Exchange Offer may be withdrawn at
any time prior to the Expiration Date. Sun World will pay all
expenses incident to the Exchange Offer. Sun World will not receive
any proceeds from the Exchange Offer.
SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR A DISCUSSION OF
CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY INVESTORS IN CONNECTION
WITH THE EXCHANGE OFFER AND AN INVESTMENT IN THE EXCHANGE NOTES.
_____________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
________________, 1997
AVAILABLE INFORMATION
Sun World and the Guarantors have filed with the Securities and
Exchange Commission (the "Commission") a Registration Statement on
Form S-4 (together with all amendments, exhibits, schedules and
supplements thereto, the "Registration Statement") under the
Securities Act with respect to the Exchange Notes being offered
hereby. This Prospectus, which forms a part of the Registration
Statement, does not contain all of the information set forth in the
Registration Statement. For further information with respect to Sun
World, the Guarantors, and the Exchange Notes, reference is made to
the Registration Statement. Statements contained in this Prospectus
as to the contents of any contract or other document are not
necessarily complete, and, where such contract or other document is
an exhibit to the Registration Statement, each such statement is
qualified in all respects by the provisions in such exhibit, to
which reference is hereby made. Copies of the Registration
Statement may be examined without charge at the Public Reference
Section of the Commission, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, and the Commission's Regional Offices
located at Seven World Trade Center, 13th Floor, New York, New York
10048 and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of all or any portion of the
Registration Statement can be obtained from the Public Reference
Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, upon payment of certain fees prescribed by the Commission.
The Registration Statement has been and will be filed through the
Electronic Data Gathering, Analysis and Retrieval ("EDGAR") system.
Electronic registration statements filed through the EDGAR system
are publicly available through the Commission Web Site
(http://www.sec.gov).
Although Sun World is not currently subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), Cadiz is subject to the informational requirements
of the Exchange Act, and, in accordance therewith, will file
periodic reports and other information with the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549. Copies of any material
so filed can be obtained from the Public Reference Section of the
Commission, upon payment of certain fees prescribed by the
Commission.
The Indenture governing the Notes provides that, whether or not
required by the rules and regulations of the Commission, so long as
any Exchange Notes are outstanding, Cadiz will furnish to the
Holders of Notes (i) all quarterly and annual financial information
that would be required to be contained in a filing with the
Commission on Forms 10-Q and 10-K if Cadiz is required to file such
Forms, including a "Management's Discussion and Analysis of
Financial Condition and Results of Operations" that describes the
financial condition and results of operations of Cadiz and Cadiz'
consolidated subsidiaries and, with respect to the annual
information only, a report thereon by the certified independent
accountants for Cadiz and (ii) all current reports that would be
required to be filed with the Commission on Form 8-K if Cadiz were
required to file such reports. In addition, whether or not required
by the rules and regulations of the Commission, Cadiz will file a
copy of all such information and reports with the Commission for
public availability (unless the Commission will not accept such a
filing) and make such information available to securities analysts
and prospective investors upon request.
The Indenture also provides that, whether or not required by the
rules and regulations of the Commission, so long as any Notes are
outstanding, Sun World will furnish to the Holders of Notes
(i) quarterly and annual financial information including statements
of operations, statements of cash flows and balance sheets of Sun
World and its Restricted Subsidiaries (as defined in "Description of
Exchange Notes - Certain Definitions") separate from the financial
condition and results of operations of Cadiz and of the Unrestricted
Subsidiaries of Sun World (as defined in "Description of Exchange Notes
- - Certain Definitions") and, with respect to the annual information
only, a report thereon by the certified independent accountants for
Sun World and (ii) all current reports that would be required to be
filed with the Commission on Form 8-K if Sun World were required to
file such reports.
UNTIL_____________________, 1998 (90 DAYS AFTER THE DATE OF THIS
PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY
BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus includes "forward-looking statements" within the
meaning of Section 27A of the Securities Act and Section 21E of the
Exchange Act. All statements other than statements of historical
facts included in this Prospectus including, without limitation, the
statements under "Prospectus Summary," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and
"Business" and located elsewhere herein regarding the industry
prospects and financial position of Sun World and the Guarantors are
forward-looking statements. Although management believes that the
expectations reflected in such forward-looking statements are
reasonable, no assurances can be given that such expectations will
prove to have been correct. Important factors that could cause
actual results to differ materially from management's expectations
("Cautionary Statements") are disclosed in the Prospectus including,
without limitation, in conjunction with the forward-looking
statements included in this Prospectus and under "Risk Factors."
All subsequent written and oral forward-looking statements
attributable to Sun World or the Guarantors, or persons acting on
their behalf, are expressly qualified in their entirety by the
Cautionary Statements. Section 27A of the Securities Act and
Section 21E of the Exchange Act are not applicable to Sun World in
connection with the Exchange Offer.
TABLE OF CONTENTS
Page
Prospectus Summary . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
The Exchange Offer . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Capitalization. . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
Unaudited Pro Forma Condensed Consolidated Financial Information . . . 27
Management's Discussion and Analysis
of Financial Condition and
Results of Operations. . . . . . . . . . . . . . . . . . . . . . . . 31
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . 56
Principal Stockholders . . . . . . . . . . . . . . . . . . . . . . . . 62
Certain Relationships and Related Transactions . . . . . . . . . . . . 64
Description of Exchange Notes. . . . . . . . . . . . . . . . . . . . . 66
Description of Other Indebtedness. . . . . . . . . . . . . . . . . . ..96
United States Federal Tax Consequences . . . . . . . . . . . . . . . . 96
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . 97
Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
Index to Defined Terms. . . . . . . . . . . . . . . . . . . . . . . . .99
Index to Financial Statements. . . . . . . . . . . . . . . . . . . . .F-1
PROSPECTUS SUMMARY
The following summary information is qualified in its entirety
by the more detailed information and financial statements appearing
elsewhere in this Prospectus. Unless the context otherwise
requires, all references to "Sun World" shall mean, collectively,
Sun World International, Inc. and its subsidiaries on a consolidated
basis. The principal executive offices of Sun World and its
Subsidiary Guarantors are located at 16350 Driver Road, Bakersfield,
California 93308, and its telephone number is (805) 392-5000.
Unless the context otherwise requires, all references to "Cadiz"
shall mean, collectively, Cadiz Land Company, Inc. (the parent of
Sun World and a Guarantor of the Exchange Notes) and its
subsidiaries on a consolidated basis. The principal executive
offices of Cadiz are located at 100 Wilshire Boulevard, Suite 1620,
Santa Monica, California 90401-1115, and its telephone number is
(310) 899-4700. This Prospectus contains forward-looking statements
which involve risks and uncertainties. The actual results of Sun
World and the Guarantors could differ materially from those
anticipated in such forward-looking statements as a result of
certain factors, including those set forth under "Risk Factors" and
elsewhere in this Prospectus.
Sun World
Sun World is one of the largest vertically integrated
agricultural companies in California with approximately 17,300 acres
of owned and 2,100 acres of leased improved land in two of North
America's premier agricultural regions, the Coachella and San
Joaquin Valleys of southern and central California.
Sun World is a leading grower and marketer of table grapes,
seedless watermelons, colored sweet peppers and plums. Sun World
also grows and markets other fruits and vegetables, including
peaches, nectarines, apricots and lemons. Sun World is also one of
California's largest independent marketers of grapefruits,
tangerines, mandarin oranges and dates. Sun World ships
approximately 75 varieties of fresh produce to all 50 states and
exports fresh fruits and vegetables to over 30 foreign countries.
Sun World's operations include cultivation, packing and marketing of
primarily permanent and, to a lesser extent, annual (or row) crops.
In addition, Sun World operates a large research and development
program that has produced dozens of proprietary fruit varieties in
the last five years. Sun World's marketing operations include
selling, merchandising and promoting Sun World grown products, as
well as providing these services for third party growers. Produce
grown or distributed by Sun World reaches more than
2,000 supermarket retailers, food service entities, warehouse clubs
and international trading companies throughout North America, Europe
and Pacific Rim countries. During 1996, Sun World had 25 different
customers who each accounted for in excess of $1.0 million in sales
volume, including national retailers such as Safeway Stores,
American Stores, Supervalu and Kroger, and club stores including
Sam's and PriceCostco. Approximately 10% of Sun World's products
are marketed outside of the United States in Europe, Australia,
Japan, Hong Kong, Singapore, Malaysia and Taiwan. In addition to
product and customer diversification, Sun World's farming operations
extend over 350 miles from central to southern California, providing
substantial geographic diversification that reduces the potential
negative impact of variations in weather, infestations and other
natural occurrences detrimental to a successful harvest.
Sun World Acquisition
On September 13, 1996, Cadiz acquired Sun World following a
bankruptcy related reorganization (the "Sun World Acquisition").
Cadiz is publicly traded on the Nasdaq National Market under the
ticker symbol "CLCI." The business operations of Cadiz and Sun
World are complementary, and not in competition with each other.
Cadiz' business strategy is to create a portfolio of landholdings,
water resources and agricultural operations within central and
southern California which possess sizable assured supplies of water.
Given its strategy of long-term investment, Cadiz has a history of
net losses, approximately $11.0 million for the six months ended
June 30, 1997 and approximately $6.0 million for the nine months
ended December 31, 1996, and an accumulated deficit of approximately
$73.2 million at June 30, 1997 and approximately $61.1 million at
December 31, 1996. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations." Cadiz' management
believes that, with both the increasing scarcity of water supplies
in California and the increasing demand for water, Sun World's and
Cadiz' access to water will provide them with a competitive advantage
both as a major agricultural concern and as a supplier of water, which
will lead to continued appreciation in the value of Cadiz' water
portfolio. The Sun World Acquisition provides Cadiz with valuable
water rights throughout the central and southern valleys of California.
Excluding Sun World's properties, Cadiz' portfolio includes more than
39,000 acres of land in eastern San Bernardino County. The largest
property totals approximately 27,400 acres at Cadiz, California. In
addition to the Cadiz Water Project (as defined in "Description of
Exchange Notes - Certain Definitions), approximately 1,600 acres
have been developed for cultivation of citrus orchards, table
grape vineyards and row crops. Sun World's portfolio includes
more than 17,300 acres of prime agricultural land in the San Joaquin
and Coachella Valleys, increasing Cadiz' total landholdings to
approximately 56,300 acres.
Industry Overview
The United States agricultural industry annually produces more
than 400 types of fruits and vegetables with a retail value
exceeding $60 billion. These products are grown, packed and
marketed through one or more distribution channels including
brokers, wholesale jobbers, service wholesalers, distributors, food
service operators and supermarket retailers before reaching the
consumer. Due to the growing cycle of these products, the supply of
fruits and vegetables from a particular region varies throughout the
season producing substantial price fluctuations over relatively
short time periods.
Although these products are seasonal and their prices
fluctuate, the consumer demands fresh produce throughout the year.
As a result, retailers prefer to source from marketers who can
supply a consistently high quality product over a large portion of
the year. A grower or marketer who is able to provide product both
early and late in the season gains both a distribution and a price
advantage, which often results in significantly enhanced
profitability. Finally, there is a growing consumer concern
regarding food safety and consequently the environment in which
fresh produce is grown and packed. As a result, retailers are
increasingly choosing to reduce the number of suppliers with whom
they contract and to require these suppliers to track their produce
from seed to table. As a result of these trends, retailers are
working more closely with larger, more established growers and
marketers who can provide them with the quality, timeliness and
breadth of products they require.
Most commercial farming operations produce both permanent crops
and row crops. From a commercial perspective there are two
important differences between permanent and row crops: (i) permanent
crops require significant lead time before producing commercially
viable yields (e.g. approximately three years for grapes and five
years for stone fruit); and (ii) permanent crops often last 30 or
more years and reach their peak production potential after 10 years.
In addition, in the Coachella and San Joaquin Valleys, there has
been a continuing reduction in developed farming properties due to
urban encroachment. Consequently, a change in the permanent crop
mix in this region would generally require the incurrence of a
several year lag period as new crops reach commercial maturity.
These factors result in a relatively stable permanent crop base over
an extended period of time limiting supply based price volatility.
Row crops, on the other hand, are replanted annually and are subject
to wider variations in supply and consequently, price. As a result,
permanent crops tend to produce a more predictable revenue stream
than row crops.
Business Strategy
New management believes that in the past Sun World did not
focus on maximizing profitability and controlling the volatility of
its operating earnings, factors which contributed to Sun World's
filing for bankruptcy in October, 1994. Following the Sun World
Acquisition in September 1996, management implemented the following
five-point strategy: (i) producing more varieties of crops which
are available for delivery at peak pricing windows throughout the
year; (ii) expanding third party marketing and packing businesses to
increase Sun World's ability to absorb the primarily fixed costs of
its vertically integrated operations; (iii) improving administrative
efficiency through both headcount reductions and a new comprehensive
management information system; (iv) commercializing Sun World's
extensive proprietary product portfolio consisting of over
600 worldwide patents and trademarks; and (v) reducing leverage to
lower financial risk and improve operating flexibility.
Reducing Earnings Volatility of Farming Operations. Sun World
primarily grows table grapes (35% of 1996 acreage) and stone fruit
(plums, peaches, nectarines and apricots) (26% of 1996 acreage).
Subsequent to the Sun World Acquisition, new management developed a
crop plan that provided for the removal of certain underperforming
permanent crops and the continued development of certain proprietary
varieties of grapes and stone fruit. Given Sun World's current crop
allocation plan, it is now redeploying marginally productive acreage
to further reduce the volatility of its earnings. In addition, new
management has significantly increased the efficiency and market
focus of Sun World's research and development program, which
continues to be one of the largest fruit breeding programs in the
world. Through this program, Sun World has developed and holds
patents on several key products that are unique in taste, features
and growing characteristics. For example, Sun World's flagship
Superior Seedless(TM) brand grape stays securely on the stem during
shipping, thereby eliminating shrinkage, an attribute important to
Sun World's customers. In addition, a number of Sun World's
products are well suited for harvesting during periods of limited
supply, allowing Sun World to sell its products at attractive price
points. Other key specialty products include Black Diamond(TM)
plums, Amber Crest(R) peaches, Honeycot(R) apricots, Star Sweet(R)
grapefruits, Sun World sweet colored peppers and Sun World
Seedless(R) watermelons. As a result of these initiatives, Sun World
has reduced its exposure to the price volatility inherent in
undifferentiated products, extended its leadership position in table
grapes and stone fruit and redeployed unprofitable acreage primarily
to proprietary permanent crops. Consequently, Sun World is better
able to manage its cost structure and to provide its unique products
to retailers at strong price points during the year, enhancing the
level and predictability of its earnings.
Expanding Marketing and Packing Businesses. In addition to
produce grown on its own ranches, Sun World provides marketing and
packing services for both domestic and international growers. On
average, Sun World sells 12 to 13 million units annually, with an
average wholesale value of approximately $120 million. As a
leading, vertically integrated producer, packer and marketer of
fruits and vegetables, Sun World has developed a strong brand name
and reputation for quality and reliability. Going forward, Sun
World intends to build upon this brand equity to expand the
marketing and distribution of both its own and third party products
to provide a full product line throughout the year, further
solidifying its strong wholesaler relationships. To this end, Sun
World has developed distribution relationships with growers in Chile
and Mexico to sell contra-seasonal products (winter fruits and
vegetables) in the United States and is already distributing such
products throughout its retail customer base. In addition to these
programs, Sun World has hired an executive to recruit qualified new
growers, who can benefit from Sun World's strong brand name and
distribution relationships. In addition to growing its revenue
base, Sun World has several initiatives intended to increase its
operating efficiency, such as consolidating its Coachella packing
operations from four to two facilities and retrofitting its
Kimberlina facility to pack citrus contra-seasonal to its existing
stone fruit packing operation. Sun World's existing infrastructure
is sufficient to support its internal operations during the peak
season but provides available capacity in the off season. As a
result, Sun World's third party sales and marketing as well as
contra-seasonal packing operations have significant opportunities to
benefit from Sun World's existing operating leverage.
Improve Administrative Efficiency. Since the Sun World
Acquisition, new management has implemented a number of
organizational changes to provide more focused farming and financial
management. Several key managers were hired, including a chief
executive officer with extensive agricultural and distribution
experience, a chief financial officer who was previously a partner
with Coopers & Lybrand LLP and a highly experienced senior executive
to focus exclusively on enhancing Sun World's third party marketing
and packing businesses. In addition, Sun World has appointed a new
Senior Vice President of Operations. These individuals, along with
Sun World's Senior Vice President Sales and Senior Vice
President Corporate Development and Marketing form Sun World's
senior management team. Sun World closed its former administrative
headquarters and consolidated these operations into existing space
at its main packing facility. During 1996, Sun World reduced its
administrative staff by approximately 13%, largely through the
elimination of unnecessary reporting layers. To support these
streamlining changes, Sun World is implementing a new information
management system which should be operational by the end of 1997.
Management believes that these changes will eliminate $1.3 million
in annual overhead costs which would have resulted in a 16%
reduction in sales, general and administrative costs in 1996. With
these organizational changes completed, Sun World is focused on the
strategic advantages of proprietary permanent crops, strong customer
relationships and significant marketing expertise and packing
resources.
Commercializing Proprietary Product Portfolio. With over
600 worldwide patents and trademarks, Sun World has identified
select opportunities to commercialize its proprietary product
portfolio without diluting its strength as the exclusive grower of
these products in the United States. In the last 10 years, Sun
World has introduced more than 40 proprietary fruit varieties. The
development of a new product takes many years and sometimes a decade
or more. As a result, Sun World, which annually produces tens of
thousands of new grape and stone fruit seedlings, has a strong
leadership position in the development of innovative products. In
addition, Sun World has recently experienced significant
international success in the protection of its proprietary products.
Currently, Sun World actively exploits its seedless watermelon,
which in 1996 generated a profit of $1.5 million to Sun World
through its 50% ownership interest in American SunMelon, and is
actively exploring various new domestic and international
opportunities to license various grape and stone fruit varieties.
Reducing Leverage to Lower Financial Risk and Improve Operating
Flexibility. When new management took over Sun World in September,
1996, total debt was $151.8 million. From that time to December 31,
1996, management lowered debt by $16.4 million, or 11%, through
improved operational cash flows and proceeds from the sale of
non-essential assets. Sun World is continuing to strengthen its
balance sheet and improve its operating structure through asset
sales. As of December 31, 1996, following the Sun World
Acquisition, Sun World completed land sales for $12.4 million, at
prices at or above their appraised value. Additionally, in 1997,
Sun World has sold one ranch and one packing facility for $2.9
million.
Guarantees and Security
The Exchange Notes will be fully and unconditionally
guaranteed, jointly and severally, by Cadiz and by Sun World's
Subsidiary Guarantors. The Exchange Notes, the Subsidiary Guarantees,
and the Cadiz Guarantee will be secured by a first priority lien,
subject to Permitted Liens, on the Collateral. The Collateral, as
defined, consists of all of the assets of Sun World, the Subsidiary
Guarantors, and Cadiz, respectively, except Excluded Assets. Excluded
Assets include, as to Cadiz, all of the assets of Cadiz other than the
outstanding stock of Sun World. Excluded Assets include, as to Sun World
and the Subsidiary Guarantors, the Revolving Credit Agreement Collateral
(along with any Proceeds or products arising therefrom and any rights
to payment of money or Chattel Paper or insurance proceeds payable in
respect thereto, except to the extent that any such Proceeds or products
(including money and Chattel Paper) constitute or are deemed to constitute
Collateral Proceeds), the Zenith Collateral and certain other assets of
the Issuer and its Subsidiaries, the value of which is immaterial in
the aggregate, as set forth in the Collateral Documents. See "Description
of Exchange Notes Ranking and Security." Since the obligations of the
Guarantors are joint and several, the Cadiz Guarantee is, in effect, also
secured by all of the assets of Sun World and of the Subsidiary Guarantors
except for Excluded Assets, and the Subsidiary Guarantees are, in effect,
also secured by the stock of Sun World.
The footnotes to the Consolidated Financial Statements of Cadiz
for the six months ended June 30, 1997 and 1996, contained in this
Prospectus, include summarized consolidated financial information
for Sun World and combined summarized financial information for the
Subsidiary Guarantors for the six months ended June 30, 1997. In
addition, the footnotes to the Consolidated Financial Statements of
Sun World for the period September 14, 1996 through December 31,
1996, contained in this Prospectus, include combined summarized
financial information for the Subsidiary Guarantors for (i) the
period September 14, 1996 through December 31, 1996, (ii) the period
January 1, 1996 through September 13, 1996, and (iii) for each of
the years ended December 31, 1995 and 1994.
The Exchange Offer
The Exchange Offer Sun World is offering to exchange pursuant to
the Exchange Offer up to $115,000,000 aggregate
principal amount of its new 11-1/4% First
Mortgage Notes due 2004 (the "Exchange Notes"),
for $115,000,000 aggregate principal amount of
its outstanding 11-1/4% First Mortgage Notes due
2004 (the "Old Notes"). The Old Notes were
issued and sold on April 16, 1997, in
transactions not registered under the Securities
Act, to Smith Barney Inc. (the "Initial
Purchaser"), in reliance upon the exemption
provided in Section 4(2) of the Securities Act,
and the Initial Purchaser subsequently resold
the Old Notes in exempt transactions. The terms
of the Exchange Notes are identical in all
material respects (including principal amount,
interest rate and maturity) to the terms of the
Old Notes for which they may be exchanged
pursuant to the Exchange Offer, except that the
Exchange Notes are freely transferable by
holders thereof (other than as provided herein)
and will be issued without rights for any
further registered exchange offer and will not
include various liquidated damages rights held
by holders of Old Notes. See "The Exchange
Offer--Terms of the Exchange" and "--Terms and
Conditions of the Letter of Transmittal" and
"Description of Exchange Notes."
Interest Payments Interest on the Exchange Notes shall accrue from
the last Interest Payment Date (April 15 or
October 15) on which interest was paid on the
Old Notes so surrendered or, if no interest has
been paid on such Old Notes, from April 16,
1997.
Minimum Condition The Exchange Offer is not conditioned upon any
minimum aggregate principal amount of Old Notes
being tendered for exchange.
Expiration Date The Exchange Offer will expire at 5:00 p.m., New
York City time, on__________, 1997, unless
extended (the "Expiration Date"). Any Old Note
not accepted for exchange for any reason will be
returned without expense to the tendering holder
thereof as promptly as practicable after the
expiration or termination of the Exchange Offer.
Exchange Date The date of acceptance for exchange of the Old
Notes will be the first business day following
the Expiration Date.
Conditions of the
Exchange Offer Sun World's obligation to consummate the
Exchange Offer will be subject to certain
conditions. See "The Exchange Offer--Conditions
to the Exchange Offer." Sun World reserves the
right to terminate or amend the Exchange Offer
at any time prior to the Expiration Date upon
the occurrence of any such condition.
Withdrawal Rights The tender of Old Notes pursuant to the Exchange
Offer may be withdrawn at any time prior to the
Expiration Date.
Procedures for
Tendering Notes See "The Exchange Offer--Tender Procedure."
Federal Income Tax
Consequences The exchange of Old Notes for Exchange Notes
will not be a taxable exchange for federal
income tax purposes. See "United States Federal
Tax Consequences."
Effect on Holders
of Notes As a result of the making of, and upon
acceptance or exchange of all validly tendered
Old Notes pursuant to the terms of, this
Exchange Offer, Sun World will have fulfilled a
covenant contained in the Registration Rights
Agreement (the "Registration Rights Agreement")
dated as of April 16, 1997 between Sun World and
the Initial Purchaser and, accordingly, there
will be no Liquidated Damages which were provided
for in the terms of the Registration Rights
Agreement, and the holders of the Old Notes
will have no further registration or other
rights under the Registration Rights Agreement.
Holders of the Old Notes who do not tender their
Old Notes in the Exchange Offer will continue to
hold such Notes and will be entitled to all the
rights and subject to all the limitations
applicable thereto (including the restrictions
on transfer thereof) under the Indenture, dated
as of April 16, 1997, between Sun World and IBJ
Schroder Bank & Trust Company, as Trustee,
relating to the Old Notes and the Exchange Notes
(the "Indenture"), except for any such rights
under the Registration Rights Agreement that by
their terms terminate or cease to have further
effectiveness as a result of the making of, and
the acceptance for exchange of all validly
tendered Old Notes pursuant to, the Exchange
Offer. Except for the restrictions on
registrations and transfers, all untendered Old
Notes and the Exchange Notes will be treated as
one class of securities for purposes of the
covenants and the other terms contained in the
Indenture.
Use of Proceeds There will be no cash proceeds to Sun World from
the exchange pursuant to the Exchange Offer.
Exchange Agent IBJ Schroder Bank & Trust Company is serving as
Exchange Agent in connection with the Exchange
Offer.
TERMS OF THE EXCHANGE OFFER
Issuer Sun World International, Inc.
Notes Offered $115,000,000 principal amount of 11-1/4% Series
B First Mortgage Notes, due 2004
Maturity Date April 15, 2004
Interest Payment
Dates April 15 and October 15 of each year, commencing
October 15, 1997
Guarantees The Exchange Notes will be fully and
unconditionally guaranteed, jointly and
severally, by Cadiz and by each of the
Subsidiary Guarantors, which consist of the
following: Coachella Growers, Inc., Sun Desert,
Inc., Sun World Brands, Sun World Management
Corp., Sun World/Rayo, Agri-Land Realty, Inc.,
Big Valley Leasing, Inc., Dinuba Packing
Corporation, Pacific Farm Service, Inc., SFC
Marketing Corporation, Sun Harvest, Inc., Sun
World Avocado and Sun World Export, Inc.
Ranking The Exchange Notes and the Guarantees will rank
pari passu in right of payment to all existing
and future unsubordinated indebtedness of Sun
World and the Guarantors, respectively, except
to the extent of any collateral which may be
pledged to secure such other indebtedness. As
of June 30, 1997, Cadiz, Sun World and the
Subsidiary Guarantors, taken as a consolidated
group, had approximately $30.7 million of
unsubordinated indebtedness (of which
approximately $19.3 was secured by Excluded Assets
of Sun World and $9.7 million was secured by
certain assets of Cadiz and which $29.0 million of
unsubordinated indebtedness constitutes the dollar
amount of debt to which the Exchange Notes are
effectively subordinated).
Collateral The Exchange Notes will be secured by a first
priority lien on the Collateral owned or
hereafter acquired by Sun World, subject to Permitted
Liens. Each of the Subsidiary Guarantees will be
secured by a first priority lien on the Collateral
owned or hereafter acquired by each of the Subsidiary
Guarantors, subject to Permitted Liens. The Collateral
owned by Sun World includes, without limitation,
(i) all of the stock of Sun World's subsidiaries,
(ii) all of its real property, including additions
and improvements, (iii) all of its personal
property, plant, equipment, furnishings and
fixtures, (iv) all of its rights to water, and
(v) all trees and vines, in each case excluding
the growing crops which are the bloom or fruit
of the trees and vines which comprise a part of
the Excluded Assets. The Collateral owned by
the Subsidiary Guarantors includes, without
limitation, (i) all of each Subsidiary
Guarantors' real property, including additions
and improvements, (ii) all personal property,
plant, equipment, furnishings and fixtures, and
(iii) all of each Subsidiary Guarantors' rights
to water. The Collateral owned by Cadiz includes
all of the assets of Cadiz other than Excluded
Assets; however, as the Excluded Assets include
all of the assets of Cadiz other than the stock
of Sun World, the Cadiz Guarantee will be secured
by a pledge of Sun World's stock. The Excluded
Assets also include the Revolving Credit Agreement
Collateral of Sun World (including all of Sun
World's cash and cash equivalents, inventory,
receivables and growing crops which are the
bloom or fruit of trees and vines), along with
any Proceeds or products arising therefrom and
any rights to payment of money or Chattel Paper
or insurance proceeds payable in respect thereto,
except to the extent that any such Proceeds or products
(including money and Chattel Paper) constitute or
are deemed to constitute Collateral Proceeds,
the Zenith Collateral, certain other assets of the
Issuer and its Subsidiaries, the value of which is
immaterial in the aggregate, as set forth in the
Collateral Documents, and all of the assets of
Cadiz other than the stock of Sun World. Since the
obligations of the Guarantors are joint and several,
the Cadiz Guarantee is, in effect, also secured by
all of the assets of Sun World and of the Subsidiary
Guarantors except for Excluded Assets, and the
Subsidiary Guarantees are, in effect, also secured
by the stock of Sun World. See "Description of
Notes--Ranking and Security."
As of June 30, 1997, the book value of
the Collateral was approximately $139.0 million.
In addition, management estimates that, as of such
date, the fair market value of the Collateral was
approximately $148.0 million. However, given the
relatively large size of Sun World's landholdings,
(as to which a substantial portion of this market
value relates) and the proprietary nature of the
product mix grown on such properites, there are
relatively few potential buyers in a position to
purchase and operate such properties, resulting in
a lack of liquidity for these assets. In addition,
the absence of an established trading market for
these assets and the difficulty of identifying
comparable properties and proprietary products for
purposes of market analysis leads to difficulty in
ascertaining market value.
Collateral may be disposed of without release or
consent by the Trustee under limited circumstances
in which the overall value of the Collateral will
not be materially adversely affected, and so long
as no Default or Event of Default shall have occurred
and be continuing or would result therefrom.
See "Description of Exchange Notes - Possession,
Use and Release of Collateral - Disposition of
Collateral Without Release."
Optional
Redemption The Exchange Notes may be redeemed at the option
of Sun World, in whole or in part, on or after
April 15, 2001 at a premium declining to par in
2003, plus accrued and unpaid interest through
the redemption date.
Change of
Control/Asset Sale In the event of a Change of Control, the holders
of the Exchange Notes will have the right to require
Sun World to purchase their Exchange Notes at a price
equal to 101% of the aggregate principal amount
thereof, plus accrued and unpaid interest and
Liquidated Damages to the date of purchase. In
the event of an Asset Sale and provided that Excess
Proceeds (generally, the Net Proceeds of an Asset
Sale that are not used to replace Collateral or
repay certain Indebtedness within 180 days of the
Asset Sale) exceed $5.0 million, the holders of the
Exchange Notes will have the right to require Sun
World to purchase the maximum principal amount of
Exchange Notes that may be purchased from Excess
Proceeds at a price equal to 101% of the
aggregate principal amount thereof, plus accrued
and unpaid interest and Liquidated Damages to
the date of purchase. The foregoing provisions
may be modified with the consent of the holders
of the majority in principal amount of Notes
then outstanding, with the effect of negating
the protections afforded by such provisions to
non-consenting holders.
A Change in Control (but not an Asset Sale)
would constitute a default under other existing
credit facilities of Sun World and Cadiz. Such
a default would require such facilities to be
repaid concurrently with Sun World's repurchase
of the Exchange Notes. If a Change of Control
were to occur, it is unlikely (in the absence of
alternate financing) that Sun World would be
able to both repurchase all of the Notes and
that Sun World and Cadiz could repay all of
their obligations under other indebtedness that
would become payable upon the occurrence of such
Change in Control. In contrast, as the amount
of Exchange Notes required to be repurchased by
Sun World upon an Asset Sale is limited to
Excess Proceeds, it is likely that sufficient
funds would be available for such purchase.
A default under any existing or future credit
facility would constitute a default under the
Exchange Notes if such default results in an
acceleration of such indebtedness in an amount
aggregating $5 million or more.
Should Sun World be unable to purchase some or
all of the Exchange Notes if required to do so
as a result of a Change of Control or Asset
Sale, an event of default shall occur, in which
case the Trustee or the holders of 25% in
principal amount of the then outstanding
Exchange Notes may declare all of the Notes to
be due and payable immediately, and shall also be
entitled to proceed against the Collateral. As
the Collateral does not serve as collateral
under the other existing credit facilities of
Sun World and Cadiz, any default which may occur
under such facilities as a consequence of a
Change in Control or failure to repay Exchange
Notes will not impair the remedies available to
holders of Exchange Notes.
Covenants The Indenture pursuant to which the Old Notes
were and the Exchange Notes will be issued
contains certain covenants that, among other
things, limit the ability of Cadiz, Sun World
and Sun World's subsidiaries to incur
additional indebtedness and issue preferred
stock, pay dividends or make other distributions,
repurchase Equity Interests (as defined in
"Description of Exchange Notes - Certain
Definitions") or subordinated indebtedness, engage
in sale and leaseback transactions, create certain
liens, enter into certain transactions with
affiliates, sell assets, or enter into certain
mergers and consolidations. In addition, under
certain circumstances, Sun World will be
required to offer to purchase Notes at a price
equal to 100% of the principal amount thereof,
plus accrued and unpaid interest, if any, to the
date of purchase, with the proceeds of certain
Asset Sales. See "Description of Exchange Notes
-Certain Covenants."
Absence of a
Public Market
for the Exchange The Exchange Notes are new securities, and there
is currently no established market for the
Exchange Notes. The Exchange Notes will
generally be freely transferable (subject to the
restrictions discussed elsewhere herein) but
will be new securities for which there will not
initially be a market. Accordingly, there can
be no assurance as to the development or
liquidity of any market for the Exchange Notes.
The Initial Purchaser has advised Sun World that
it currently intends to make a market in the
Exchange Notes. However, the Initial Purchaser
is not obligated to do so, and any market making
with respect to the Exchange Notes may be
discontinued at any time without notice. Sun
World intends to designate the Exchange Notes
for trading in the PORTAL market.
Limitation of
Liability Pursuant to the Indenture, no past, present or
future director, officer, employee or
stockholder of Sun World or any Subsidiary shall
have any liability for any obligations under the
Exchange Notes or Subsidiary Guarantees to
holders of Exchange Notes. To the extent this
provision may limit Securities Act liabilities,
Sun World and the Guarantors have been informed
that it is the Securities and Exchange
Commission's opinion that such limitation is
against public policy and is unenforceable.
SELECTED FINANCIAL DATA
CADIA LAND COMPANY, INC.
The following table sets forth certain selected historical
consolidated financial data for Cadiz for each of the six month
periods ended June 30, 1997 and 1996, for the nine-month period
ended December 31, 1996 and for each of the years ended March 31,
1996, 1995, 1994 and 1993. The selected financial data has been
derived from Cadiz' consolidated financial statements for (i) the
six months ended June 30, 1997 and 1996 which have not been audited;
(ii) the nine months ended December 31, 1996 and the two years ended
March 31, 1996, which have been audited by Price Waterhouse LLP,
independent accountants, as indicated in their report included
elsewhere herein; and (iii) the years ended March 31, 1994 and 1993,
which have been also audited by Price Waterhouse LLP, independent
accountants. The unaudited pro forma statement of operations data
gives effect to the following transactions as if they had occurred
on April 1, 1996: (i) the Sun World Acquisition; and (ii) the
offering of the Old Notes ("Offering"), the Revolving Credit
Agreement (as defined in "Description of Exchange Notes - Certain
Definitions") and repayment of secured debt owed to
Rabobank (except for the Offering, collectively the "Related
Transactions") in the amount of approximately $9.1 million and the
application of the proceeds therefrom. The pro forma balance sheet
data as of December 31, 1996 has been prepared as if the Offering
and the Related Transactions occurred on that date. The selected
pro forma data has been derived from: (i) the activity for Sun World
for the period April 1, 1996 through September 13, 1996, which was
derived by subtracting the activity of Sun World for the period
January 1, 1996 through March 31, 1996, which period was unaudited,
from the consolidated financial statements of Sun World for the
period January 1, 1996 through September 13, 1996 (audited); and
(ii) the consolidated financial statements of Cadiz for the period
April 1, 1996 to December 31, 1996 (audited) which includes, on a
consolidated basis, the results of operations for Cadiz for the
period April 1, 1996 to December 31, 1996 and those of Sun World for
the period September 14, 1996 (the date of the Sun World
Acquisition) to December 31, 1996.
The following table should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Unaudited Pro Forma Financial Information" and the Consolidated Financial
Statements, including the notes thereto, included elsewhere in this
Prospectus.
<TABLE>
<CAPTION> Pro Forma
Six Six Nine Nine
Months Months Months Months
Ended Ended Ended Ended
June 30, June 30, December 31, December 31,
1997(1) 1996 1996 1996(1)
------- ------ --------- ---------
<S> <C> <C> <C> <C>
Statement of Operations Data:
Revenues $ 30,543 $ 403 $ 98,010 $23,780
Loss from continuing
operations before
extraordinary items (10,965) (5,128) (2,877)(2) (5,997)
Gain from disposal of
discontinued segment -0- -0- -0- -0-
Extraordinary items -0- -0- -0- -0-
-------- ------- ------- -------
Net loss (10,965) (5,128) (2,877)(2) (5,997)
Less: Preferred stock dividends (1,204) -0- (1,828) (674)
Imputed dividend on
preferred stock -0- -0- (2,723) (2,451)
------ ------ ------ ------
Net loss applicable to
common stock $ (12,169) $(5,128) $(7,428)(2) $(9,122)
========= ======== ======== =======
Per Share:
Loss from continuing operations
before extraordinary items $ (0.46) $ (0.27) $ (0.34)(2)$ (0.44)
Income from operations of
discontinued segment and
disposal of discontinued
segment -0- -0- -0- -0-
Extraordinary items -0- -0- -0- -0-
-------- ------- ---------- -------
Net loss $ (0.46) $ (0.27) $(0.34)(2) $ (0.44)
======= ========= ========= =======
<CAPTION> Year ended March 31,
-----------------------------------
1996 1995 1994 1993
--------- -------- ------- -------
<S> <C> <C> <C> <C>
Statement of Operations Data:
Revenues $ 1,441 $ 543 $ 190 $ -0-
Loss from continuing
operations
before extraordinary items (8,487) (4,706) (4,239) (4,087)
Gain from disposal of
discontinued segment -0- -0- -0- -0-
Extraordinary items -0- 115 343 -0-
------ ------ ----- ------
Net loss (8,487) (4,591) (3,751) (4,087)
Less: Preferred stock
dividends -0- -0- -0- -0-
Imputed dividend on
preferred stock -0- -0- -0- -0-
------ ------ ------ ------
Net loss applicable to
common stock $(8,487) $ (4,591) $(3,751) $(4,087)
======== ======== ======== ========
Per Share:
Loss from continuing operations
before extraordinary items $ (0.48) $ (0.29) $ (0.33) $ (0.47)
Income from operations of
discontinued segment and
disposal of discontinued
segment -0- -0- 0.01 -0-
Extraordinary items -0- 0.01 0.03 -0-
------ ------ ------ ------
Net loss $ (0.48) $ (0.28) $ (0.29) $ (0.47)
======= ========= ======== ========
<CAPTION>
Pro Forma
June 30, December 31, December 31,
1997 1996 1996(1)
----- ------- ----------
<C> <C> <C>
Balance Sheet and Other
Financial Data:
Total assets $226,506 $ 206,314 $ 230,790
Long-term
obligations and
redeemable
preferred stock(3) 136,460 154,817 176,542
Weighted-average
common shares and
equivalents 26,400 21,600 20,500
<CAPTION>
Six Pro Forma
Months Nine Months Nine Months
Ended Ended Ended
June 30, December 31, December 31,
1997 1996 1996(1)
------ ------ ---------
<S> <C> <C> <C>
Deficiency in the
coverage of
fixed charges(4) $ (10,965) $ (3,518) $ (6,638)
<CAPTION>
As of March 31,
-------------------------------------
1996 1995 1994 1993
----- ----- ------ -----
<S> <C> <C> <C> <C>
Balance Sheet and
Other Financial Data:
Total assets $ 38,663 $ 34,888 $ 34,058 $ 27,635
Long-term obligations
and redeemable
preferred stock(3) 68 16,827 13,833 15,979
Weighted-average common
shares and equivalents 17,700 16,500 12,800 8,700
<CAPTION>
Year ended March 31,
---------------------------------------
1996 1995 1994 1993
------ ----- ------ ------
<S> <C> <C> <C> <C>
Deficiency in the
coverage of
fixed charges(4) $ (8,487) $ (4,706) $ (4,239) $ (4,087)
</TABLE>
- -----------------------
(1) On September 13, 1996, Cadiz acquired all of the outstanding capital
stock of Sun World. Cadiz' acquisition of Sun World is accounted for
in Cadiz' financial statements under the purchase method of
accounting. In addition, subsequent to the acquisition of Sun World,
Cadiz changed its fiscal year end from March 31 to December 31 in
order to align Cadiz' year end with that of Sun World. Accordingly,
the selected financial data for the period ended December 31, 1996
include the results of operations for Sun World from the date of
acquisition.
(2) Includes for the nine months ended December 31, 1996, charges incurred
by Sun World totaling $4.8 million which were directly attributable to
the Chapter 11 bankruptcy proceedings and are non-recurring in
nature. Exclusion of the non-recurring charges would have resulted in
a pro forma net loss per share of $0.12 for the nine months ended
December 31, 1996.
(3) Long-term obligations are defined as funded debt comprising borrowings
from financial institutions and vendors.
(4) Earnings used in computing the coverage of earnings to fixed charges
consists of loss from continuing operations before provision for
income taxes and extraordinary items plus fixed charges. Fixed
charges consist of interest expense, including amortization of debt
issuance costs and a portion of operating lease rental expense deemed
to be representative of the interest factor. Earnings are inadequate
to cover fixed charges for each period as noted above.
RISK FACTORS
In addition to the other information in this Prospectus, holders
of Old Notes should consider carefully the following factors before
tendering their Old Notes for Exchange Notes offered hereby. The
risk factors set forth below are generally applicable to the Old
Notes as well as the Exchange Notes.
SUBSTANTIAL LEVERAGE; ABILITY TO SERVICE OUTSTANDING INDEBTEDNESS
Both Sun World and Cadiz are highly leveraged. At June 30, 1997,
Sun World's total consolidated indebtedness was $128.9 million and
Cadiz' total consolidated indebtedness was $119.2 million.
Sun World's ability to make scheduled payments of the principal
of, or to pay the interest on, or to refinance its indebtedness
(including the Notes) will depend on its future operating
performance, which to a certain extent is subject to economic,
financial, competitive, regulatory, and other factors beyond its
control. If Sun World is unable to generate sufficient cash flow to
service its debt, it may be required to refinance all or a portion
of its existing debt, including the Notes, or to obtain additional
financing. There can be no assurance that any such refinancing
would be possible or that any additional financing could be
obtained.
The degree to which Sun World is leveraged could have material
adverse effects on Sun World and the holders of Notes including, but
not limited to, the following: (i) Sun World's ability to obtain
additional financing in the future for acquisitions, working
capital, capital expenditures, and general or other corporate
purposes may be impaired; (ii) a substantial portion of Sun World's
cash flow from operations will be dedicated to debt service and will
be unavailable for other purposes; and (iii) both Sun World and
Cadiz will be subject to a variety of restrictive covenants, the
failure to comply with which could result in events of default that,
if not cured or waived, could restrict Sun World's ability to make
payments of principal of, and interest on the Notes. See
"Description of Exchange Notes."
RISKS INHERENT IN AGRICULTURAL OPERATIONS
Sun World is subject to risks associated with its agricultural
operations. Numerous factors can affect the price, yield and
marketability of the crops grown on Sun World's properties. Crop
prices may vary greatly from year to year as a result of the
relationship between production and market demand. For example, the
production of a particular crop in excess of demand in any
particular year will depress market prices, and inflationary factors
and other unforeseeable economic changes may also, at the same time,
increase operating costs with respect to such crops. In addition,
the agricultural industry in the United States is highly
competitive, and domestic growers and produce marketers are facing
increased competition from abroad, particularly from Mexico. There
are also a number of factors outside of Sun World's control that
could, alone or in combination, materially adversely affect Sun
World's agricultural operations, such as adverse weather conditions,
insects, blight or other diseases, labor problems such as boycotts
or strikes, and shortages of competent laborers. Sun World's
operations may also be adversely affected by changes in governmental
policies, social and economic conditions, and industry production
levels. As a result, there can be no assurance that Sun World's
agricultural operations will be commercially profitable.
CERTAIN LIMITATIONS ON THE COLLATERAL AND THE GUARANTEES
The Exchange Notes will be obligations of Sun World and will be
guaranteed, jointly and severally, by Cadiz and by the Subsidiary
Guarantors. Sun World has secured its obligations under the
Exchange Notes by the pledge of the Collateral owned by it, subject to
Permitted Liens. Cadiz has secured its obligation under its Guarantee
by the pledge of all of the stock of Sun World, and each Subsidiary
Guarantor has secured its obligation under its Guarantee by the pledge
of the Collateral owned by it, subject to Permitted Liens. However,
such Collateral will not include, among other things, any Excluded
Assets See "Description of Exchange Notes Certain Definitions" and
"Description of Exchange Notes -Ranking and Security." Since the
obligations of the Guarantors are joint and several, the Cadiz
Guarantee is, in effect, also secured by all of the assets of Sun
World and of the Subsidiary Guarantors except for Excluded Assets, and
the Subsidiary Guarantees are, in effect, also secured by the stock of
Sun World.
The value of the Collateral in the event of a liquidation will
depend upon market and economic conditions, the availability of
buyers, and similar factors. Accordingly, there can be no assurance
that the proceeds of any sale of the Collateral following an Event
of Default (as defined in "Description of Exchange Notes - Certain
Definitions") would be sufficient to satisfy the amounts
due on the Exchange Notes. If the proceeds of any sale of
Collateral were not sufficient to repay all amounts due on the
Exchange Notes, the holders of the Exchange Notes (to the extent not
repaid from the proceeds of the sale of the Collateral) would have
only an unsecured claim against the remaining assets of Sun World
and claims under the Guarantees. By its nature, some or all of the
Collateral will be illiquid and may have no readily ascertainable
market value. Likewise, there is no assurance that the Collateral
will be saleable or, if saleable, that there will not be substantial
delays in its liquidation.
The Collateral includes plants and other perishable goods whose
value could significantly decrease if proper procedures to maintain
such goods are not observed. In the event Sun World were to
experience financial difficulties, Sun World might be forced to
limit the maintenance procedures necessary or desirable for the
preservation of such Collateral's value. Although in a foreclosure
the Trustee may be able to sell a portion of such collateral to
finance the maintenance of other Collateral, it is uncertain how
long such a sale might take or whether such a sale would generate
sufficient funds to maintain the remaining Collateral.
The collateral release provisions of the Indenture permit the
release of Collateral without the substitution of additional
collateral under certain circumstances, including in connection with
certain Asset Sales. However, before Collateral may be released in
connection with an Asset Sale, Sun World or the Guarantor which owns
the Collateral must comply with the Indenture's Asset Sale covenants,
(see "Descripton of Notes - Certain Covenants - Asset Sales") which
include a requirement that Replacement Assets purchased with the
proceeds of an Asset Sale shall become part of the Collateral.
Proceeds of an Asset Sale not used to purchase Replacement Assets
or to repay certain Indebtedness will constitute Excess Proceeds.
In the event Excess Proceeds, exceed $5.0 million, an Asset Sale Offer
must be made, and, to the extent that such Asset Sale Offer is
accepted, the Excess Proceeds must be used to fund the repurchase
of Exchange Notes (thereby giving holders of Notes the opportunity
to negate any risk with respect to such release). The Collateral
will also be released upon a legal defeasance or covenant
defeasance of the Notes and, upon the release of any Subsidiary
Guarantor (which is permitted only upon compliance with the provisions
described under "Description of Notes - Guarantees" and "Description
of Notes - Certain Covenants - Asset Sales"), the Collateral pledged
by such Subsidiary Guarantor will be released as security for its
Subsidiary Guarantee; however, a release of Collateral under such
circumstances is not expected to have a material adverse effect upon
holders of the Exchange Notes. See "Description of Exchange Notes -
Ranking and Security."
The Collateral includes certain leased real properties. Presently,
properties leased from third parties consist of five properties
covering a total of 751 acres, with annual lease payments totaling
approximately $175,000. The Liens upon such leased real property
Collateral are subject to the terms of the applicable leases and
the rights of the landlords thereunder, including the right to
terminate the leases in the event of a breach. If any such lease
were terminated, Sun World would lose possession of the leased
property, and the Lien in favor of the Trustee would be extinguished.
In the event the Trustee receives notice of a default under any of
the leases and has the right and opportunity to cure, the Trustee has
no obligation under the Indenture to cure any such defaults, unless
so instructed by the holders of the outstanding Notes pursuant to
the Indenture. Further, the leases contain restrictions on assignment
which may affect the ability of the Trustee to sell or transfer
the leasehold interests following a foreclosure, in which case
holders of Notes would likely be unable to realize the value, if any,
of such leasehold interests.
GEOGRAPHIC CONCENTRATION
The Collateral is located in southern and central California. A
local or regional economic downturn, changes in state or local law
or regulation, and similar localized events could have an adverse
impact on the performance or value of the Collateral.
CERTAIN LIMITATIONS UNDER STATE LAW
The Exchange Notes will be secured in part by liens on real
property in California. Based upon discussions with Miller & Holguin,
counsel to Sun World, management believes that the laws of the State
of California establish limitations upon the procedures which may be
followed by creditors seeking to enforce rights secured by real
property, which limitations may in turn impair the ability of creditors
to fully recover all amounts owed. Such limitations are found in
Section 726 of the California Code of Civil Procedure, which sets
forth California's "one form of action rule", and Section 580d of
the California Code of Civil Procedure, which sets forth California's
"anti-deficiency" rule.
One Form of Action Rule. Section 726 of the California Code of
Civil Procedure provides that "there can be but one form of action for
the recovery of any debt or the enforcement of any right secured by
mortgage upon real property." Because of this Rule, creditors secured
by California real estate are generally not allowed to both foreclose
on the real property security and bring an independent action on the
underlying note. Under the Rule, as judicially interpreted, a creditor
seeking to recover on a note secured by California real property must
first foreclose upon such collateral. If a creditor seeks to exercise
remedies other than foreclosure, such as obtaining a personal judgment
on the note, the creditor will lose its lien on the California real
property and may be unable to recover any portion of the obligation
remaining unpaid after exercise of such remedy. Therefore, in order
for the Trustee to ensure that the real property collateral will be
available for recovery upon the Notes, the Trustee will be required
to first seek foreclosure upon such collateral. In addition, pursuant
to Section 580d of the California Code of Civil Procedure (as discussed
below), in the event that the Trustee wishes to preserve the ability
to recover, following foreclosure, any difference between the total
amount of the unpaid obligation under the Notes and the proceeds
received upon foreclosure (the "deficiency"), the form of foreclosure
used must be a "judicial" foreclosure, rather than a "non-judicial"
foreclosure.
"Anti-deficiency" rule. There are two forms of foreclosure
available in California, judicial foreclosure and non-judicial
foreclosure. A judicial foreclosure is a court-ordered sale, obtained
by a creditor through the filing of a court action. A non-judicial
foreclosure is a private sale of collateral by the holder of a trust
deed or mortgage which contains a grant of a private power of sale, and
is also sometimes referred to as a "trustee's sale". The Trustee holds
such power of sale under the Collateral Documents. A non-judicial
foreclosure, because it does not require court action and because it
can be conducted a relatively short time after giving required public
notices, is generally faster, simpler and less expensive than judicial
foreclosure. However, Section 580d of the California Code of Civil
Procedure provides that "no judgment shall be rendered for any
deficiency upon a note secured by a deed of trust or mortgage upon
real property...in any case in which the real property...has been
sold by the mortgagee or trustee under power of sale contained in the
mortgage or deed of trust." Therefore, in order for a secured creditor,
such as the Trustee, to preserve its claim against the debtor for any
deficiency, judicial foreclosure must be utilized. The use of judicial
foreclosure, unlike non-judicial foreclosure, will entitle the creditor
to a judgment against the debtor for the deficiency after the property
is ordered sold by the court. Under Section 726, described above, the
amount of the deficiency will generally be based upon the amount of
secured indebtedness less an amount equal to the greater of (i) the
court's determination of fair value of the property sold and (ii) the
amount realized at the foreclosure sale.
The California laws described above should not adversely effect the
Trustee's right to collect on the Guarantees, even if a non-judicial
foreclosure is pursued. Substantially all of the real property contained
within the Collateral is owned by Sun World, and not by the Guarantors,
and the Guarantees contain a waiver by the Guarantors of the right to
defend against the enforceability of the Guarantees under the anti-
deficiency laws, even if such laws prevent recovery of the deficiency
amount directly from Sun World.
In addition to the foregoing, California law may also prevent
acceleration of the Notes as a consequence of the creation of liens,
other than Permitted Liens, on the Collateral. The existence of junior
liens could adversely affect senior lienholders in that by increasing
its debt, the borrower may be less likely to pay all debts, including
the senior debt, when due. Existence of a junior lien can also leave
the borrower with little or no equity in the property and therefore a
lesser incentive to pay its debts. Under the Indenture, Sun World is
generally prohibited from creating liens, other than Permitted Liens.
In the event of a breach of this covenant that is not remedied for
30 days after written notice of such breach is given to Sun World,
the Trustee or the holders of Notes will be entitled to accelerate
the maturity of the Exchange Notes. However, California courts have
held that wherever the maturity of an obligation secured by commercial
real property is accelerated by reason of the placement of junior liens
on the property in violation of the debtor's covenant not to further
encumber the property, the right to so accelerate can be enforced only
when the execution of the junior encumbrance endangers the lender's
security. Under LaSala v. American Savings (1972) 5 Cal. 3d 864, in
order to enforce its right to accelerate the lender must demonstrate
that the foreclosure is reasonably necessary to protect against
impairment of the security or an increased risk of default. For
example, the LaSala court held that the grant of a junior lien to a
junior lienholder occupying the property would likely endanger
the existing security and enable the lender to accelerate. If no
impairment of security or increased risk of default can be demonstrated
by the lender, the lender cannot accelerate. However, the right to
accelerate could become available at a later time if subsequent events
lead to impairment, such as when foreclosure of the junior lien occurs
or is imminent. Although pre-empted by Federal law in many circumstances,
a California court could require the Trustee or the holders of the Notes
to satisfy this requirement prior to permitting acceleration due to Sun
World's violation of this covenant. Nonetheless, the California
courts have not imposed a similar requirement for accelerations resulting
from breaches of other covenants under the Indenture.
CERTAIN BANKRUPTCY LIMITATIONS
Based upon discussion with Miller & Holguin, counsel to Sun World,
management believes that the right of the Trustee to repossess and
dispose of the Collateral upon the occurrence of an Event of Default
under the Indenture would likely be significantly impaired by bankruptcy law
if a bankruptcy case were to be commenced by or against Sun World or
its subsidiaries prior to the Trustee having repossessed and
disposed of the Collateral. Such a case could be commenced at any
time that the Exchange Notes remain outstanding. Under Title 11 of
the United States Code (the "Bankruptcy Code"), a secured creditor
such as the Trustee is prohibited from repossessing its collateral
from a debtor in a bankruptcy case, or from disposing of security
repossessed from such debtor, without bankruptcy court approval.
Moreover, the Bankruptcy Code permits the debtor to continue to
retain and use collateral even though the debtor is in default under
the applicable debt instruments, provided that the secured creditor
is given "adequate protection." The meaning of the term "adequate
protection" may vary according to circumstances, but it is intended
in general to protect the value of the secured creditor's interest
in the collateral and may include cash payments or the granting of
additional security, if and at such times as the bankruptcy court in
its discretion determines, for any diminution in the value of the
collateral as a result of the stay of repossession or disposition or
any use of the collateral by the debtor during the pendency of the
bankruptcy case, but not including interest which would accrue on
the claim to the extent of any equity in the collateral. Generally,
adequate protection payments are not required to be paid by a debtor
to a secured creditor unless the bankruptcy court determines that
the value of the secured creditor's interest in the collateral is
declining during the pendency of bankruptcy case. Due to the lack
of a precise definition of the term "adequate protection" and the
broad discretionary powers of a bankruptcy court, it is impossible
to predict how long payments under the Exchange Notes or Guarantees
could be delayed following the commencement of a bankruptcy case,
whether or when the Trustee could repossess or dispose of the
Collateral or whether or to what extent holders of the Exchange
Notes would be compensated for any delay in payment or loss of value
of the Collateral through the requirement of "adequate protection."
Under the Bankruptcy Code, a "farmer" cannot be subject to an
involuntary bankruptcy petition. The term "farming operation" is
defined in the Code to include "farming, tillage of the soil, dairy
farming, ranching, production or raising of crops, poultry, or
livestock, and production of poultry or livestock products in an
unmanufactured state". If it is determined by a court of appropriate
jurisdiction that over 80% of Sun World's gross income comes from
farming operations, Sun World may be deemed to be a "farmer" under
the Bankruptcy Code. Management believes that, if such a court were
to apply generally accepted accounting principles to Sun World's
current operations, 80% of Sun World's gross income would be deemed
to be derived from farming operations, although there can be no
assurances that the court would either apply generally accepted
accounting principles in making this determination or that the
court's interpretation of the term "farming operations" would be
the same as Sun World's. Further, there can be no assurance that
in future years those operations of Sun World which may be deemed
"farming operations" will not diminsh as a percentage of Sun World's
overall operations. Accordingly, Sun World cannot determine with
certainty whether or not it would be deemed a "farmer" under the
Bankruptcy Code. To the extent Sun World is deemed to be a "farmer"
under the Bankruptcy Code, the Trustee and the Exchange Note
holders would not be able to commence an involuntary bankruptcy case
naming Sun World as the debtor in the event Sun World defaults on its
obligations under the Notes. The Trustee and the Note holders may
enforce their rights against the Collateral; however, their inability
to commence an involuntary bankruptcy against Sun World prevents the
Trustee and Note holders from obtaining court supervision of Sun World's
ongoing operations. In addition, certain transfers within a statutory
period of time prior to the commencement of a bankruptcy petition (90
days to one year or more) may be set aside or avoided in a subsequent
bankruptcy. To the extent Sun World delays commencing a voluntary
bankruptcy case, for example to prevent foreclosure by the Trustee,
certain transfers may become unavoidable, to the benefit of certain
third parties and to the detriment of the Note holders.
FRAUDULENT CONVEYANCE
Various fraudulent conveyance laws enacted for the protection of
creditors may apply to the issuance of the Guarantees. To the
extent that a court were to find that (x) a Subsidiary Guarantee was
incurred by a Subsidiary Guarantor with intent to hinder, delay or
defraud any present or future creditor or such Subsidiary Guarantor
contemplated insolvency with a design to prefer one or more
creditors to the exclusion in whole or in part of others, or (y) a
Subsidiary Guarantor did not receive fair consideration or
reasonably equivalent value for issuing its Guarantee and such
Subsidiary Guarantor (i) was insolvent, (ii) was rendered insolvent
by reason of the issuance of its Guarantee, (iii) was engaged or
about to engage in a business or transaction for which the remaining
assets of such Subsidiary Guarantor constituted unreasonably small
capital to carry on its business or (iv) intended to incur, or
believed that it would incur, debts beyond its ability to pay such
debts as they matured, the court could avoid or subordinate such
Subsidiary Guarantee in favor of other creditors of such Subsidiary
Guarantor. Among other things, a legal challenge of any Subsidiary
Guarantee may focus on the benefits, if any, realized by such
Subsidiary Guarantor as a result of Sun World's issuance of the
Notes. Each Guarantee contains a savings clause, which generally
limits the obligations of any Guarantor under its Guarantee to the
maximum amount as will, after giving effect to all of the
liabilities of such Subsidiary Guarantor, result in such obligation
not constituting a fraudulent conveyance. Any limitation on the
amounts payable by a Guarantor under its Guarantee pursuant to the
provision in the Guarantee limiting the Guarantee obligation to an
amount that would not constitite a fraudulent conveyance or
fraudulent transfer under applicable law will result in a
corresponding limitation on the ability of the Trustee to realize
upon the Collateral pledged by such Guarantor. To the extent a
Subsidiary Guarantee was avoided or limited as a fraudulent
conveyance or held unenforceable for any other reason, holders of
the Notes would cease to have any claim against such Subsidiary
Guarantor and would be creditors solely of Sun World and Cadiz. In
such event, the claims of holders of the Notes against such
Subsidiary Guarantor would be subject to the prior payment of all
liabilities (including trade payables) of such Subsidiary Guarantor.
There can be no assurance that, after providing for all prior
claims, there would be sufficient assets to satisfy the claims of
the holders of the Notes relating to any avoided portion of any
Subsidiary Guarantee.
The Cadiz Guarantee may similarly be subject to judicial
challenge, but not to the same extent as the Subsidiary Guarantees.
Because Sun World is a wholly-owned subsidiary of Cadiz, the
Cadiz Guarantee is a "downstream" guarantee, that is, a guarantee
of an obligation incurred by a subsidiary. The Subsidiary Guarantees,
in contrast, are "upstream" guarantees, that is, a guarantee by a
subsidiary of an obligation incurred by a parent. Downstream guarantees
such as the Subsidiary Guarantees are generally considered more vulnerable
to legal challenge because, as noted above, a legal challenge can be
based upon the benefits (or lack thereof) realized by a guarantor of the
Notes. The benefits received by Cadiz, as the parent of Sun World, are
more easily demonstrated than those received by the Subsidiary
Guarantors, thus limiting the likelihood of a legal challenge to the
Cadiz Guarantee.
The measure of insolvency for the purposes of the foregoing
considerations will vary depending upon the law applied in any such
proceeding. Generally, however, a guarantor may be considered
insolvent if the sum of its debts, including contingent liabilities,
is greater than the fair marketable value of all of its assets at a
fair valuation or if the present fair marketable value of its assets
is less than the amount that would be required to pay its probable
liability on its existing debts, including contingent liabilities,
as they become absolute and mature. Based upon financial and other
information, Sun World believes that the Guarantees are being
incurred for proper purposes and in good faith and that the
Guarantors are solvent and will continue to be solvent after issuing
the Guarantees, will have sufficient capital for carrying on their
business after such issuance and will be able to pay their debts as
they mature. There can be no assurance, however, that a court
passing on such standards would agree with such beliefs. See
"Description of Exchange Notes -Guarantees."
SECURED LENDERS UNDER ENVIRONMENTAL LAWS
The Notes and the Guarantees will be secured by liens on real
property. Based upon discussion with Miller & Holguin, counsel to
Sun World, management believes that Real property pledged as security
to a lender may be subject to known and unknown environmental risks,
and these risks may reduce or eliminate the value of such real property
as Collateral. Under the federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended ("CERCLA"), in
certain circumstances a secured lender may be held to have an
obligation to remediate or may be held liable for the cost of
remediating releases or threatened releases at the mortgaged
property. There are similar risks under various state laws and
common law theories. The costs of environmental remediation are
often substantial. In addition, a secured lender may be liable for
other damages allegedly caused by the contamination under various
federal and state laws, such as natural resource damage under
CERCLA.
Generally, a lender may not incur CERCLA liability if (a) the
lender's interest in the contaminated site is principally to secure
payment or performance of an obligation; (b) the contaminated property
is acquired by the lender through foreclosure or its equivalent and
is being marketed or disposed of with a good faith effort to sell
the site upon commercially reasonable terms; and (c) the lender never
manages the site. Under CERCLA, a lender may be liable as an "owner
or operator" of a mortgaged property for such remediation costs if
such lender or its agents or employees have participated in the
management of the operations of the mortgagor, even if the environmental
damage was caused by a prior owner, current owner or operator other
than the lender. CERCLA's definition of "owner or operator" excludes
a person "who without participating in the management of the facility,
holds indicia of ownership primarily to protect his security interest"
(the "secured creditor exemption"). Generally, no CERCLA liability
will be imposed to the extent that the lender is acting to protect its
security interest in the facility or property, and it is expected that
the establishment of a security interest in the Collateral will be
considered to be part of a lender's permitted activities under CERCLA.
If a lender's activities begin to encroach upon actual management of
such facility or property, the lender faces potential liability as an
"owner or operator" under CERCLA. Lenders whose activites go beyond
the foregoing will be required to clean up the site and be responsible
for damages. However, Court cases and administrative regulations
in this area are continually changing.
Under California law, failure to perform certain remediation required
or demanded by the state may give rise to a lien on the property to
ensure the reimbursement of the costs of such remediation. The costs
to any purchaser of the property to remediate environmental conditions
could reduce or eliminate the value of the property as Collateral.
DEPENDENCE ON KEY PERSONNEL
The success of Sun World's business is highly dependent on the
members of the senior management of Sun World. The current members
of Sun World's senior management are Timothy J. Shaheen, Stanley E.
Speer, Michael J. Aiton, Kevin S. Andrew, David O. Marguleas and
David J. Peterson. See "Management - Sun World Directors, Executive
Officers and Significant Employees". All of the foregoing
individuals provide services for Sun World on a full time basis with
the exception of Mr. Speer, who also serves as Chief Financial
Officer of Cadiz. The loss of the services of one or more of them
could have a material adverse effect on Sun World's business and
development. Sun World believes that its ability to successfully
manage its planned growth will depend in large part on its continued
ability to attract and retain highly skilled and qualified personnel.
Although Sun World has established incentive compensation plans and
has entered into employment agreements to retain key executives, no
assurances can be made that key personnel will not depart, or that
their departure would not have adverse consequences to the operations
of Sun World or any of its subsidiaries.
CHANGE OF CONTROL
The Indenture will provide that upon the occurrence of any Change
of Control, Sun World will be required to make an offer to purchase
all of the Notes issued and then outstanding under the Indenture at
a purchase price equal to 101% of the principal amount thereof, plus
accrued and unpaid interest thereon to the date of purchase. A
Change in Control would constitute a default under other existing
credit facilities of Sun World and Cadiz (i.e. Sun World's $30.0
million Revolving Credit Agreement and Cadiz' $9.7 million facility
with ING Baring (U.S.) Capital Corporation. See "Management's
Discussion and Analysis of Financial Conditions and Results of
Operations - Liquidity and Capital Resources - Current Financing
Arrangements"). Certain future credit or other borrowing agreements
may contain similar restrictions. Sun World would therefore be
required to repay such facilities concurrently with Sun World's
repurchase of the Exchange Notes. See "Description of Exchange
Notes Certain Covenants."
If a Change of Control were to occur, it is unlikely that Sun
World would be able to both repurchase all of the Notes and repay
all of its obligations under other indebtedness that would become
payable upon the occurrence of such Change of Control, unless it
could obtain alternate financing. There can be no assurance that
Sun World would be able to obtain any such financing on commercially
reasonable terms or at all, and consequently no assurance can be
given that Sun World would be able to purchase any of the Notes
tendered pursuant to a Change of Control Offer.
RECENT BANKRUPTCY; UNCERTAINTY OF EFFECT OF SUN WORLD ACQUISITION
Prior to its acquisition by Cadiz, Sun World was the debtor in a
bankruptcy case under Chapter 11 of the United States Bankruptcy
Code. Sun World confirmed a Plan of Reorganization under which
Cadiz acquired all of the stock of Sun World. Sun World's recent
bankruptcy may limit the willingness of certain customers, dealers
or suppliers to deal with Sun World and, accordingly, may have a
material adverse effect on Sun World's financial condition and
results of operations.
Cadiz has a history of net losses (approximately $8.5 million for
the fiscal year ended March 31, 1996, approximately $6.0 million for
the nine months ended December 31, 1996 and approximately $11.0
million for the six month ended June 30, 1997) and accumulated
deficits (approximately $54.4 million at March 31, 1996,
approximately $61.1 million at December 31, 1996 and approximately
$73.2 million at June 30, 1997. See "Selected Financial Data" and
"Management's Discussion and Analysis of Financial Condition and
Results of Operations." As the results of operations of Sun World
prior to September 14, 1996 have not been consolidated with those of
Cadiz, such prior operating history of Cadiz is not indicative of
future trends; rather, Cadiz' consolidated results of operations
will be largely dependent upon the results of operations of Sun
World. See also "Risk Factors- Risks Inherent in Agricultural
Operations."
SEASONALITY
Sun World's agricultural operations are impacted by the general
seasonal trends that are characteristic of the agricultural
industry. Sun World has historically received the majority of its
net income during the second and third calendar quarters following
the harvest and sale of its table grape and stone fruit crops and
due to this concentrated activity, Sun World would therefore expect
to incur a loss in the first and fourth calendar quarters.
ENVIRONMENTAL MATTERS
In the normal course of its agricultural operations, Sun World
handles, stores, transports and dispenses products identified as
hazardous materials and which could subject Sun World to liability
for the cleanup of such hazardous substances or wastes or may
adversely affect the value of the real estate used as collateral for
the Exchange Notes. Such matters could, in the future, have a
material adverse effect on Sun World.
COMPETITION
The agricultural business is highly competitive. Sun World's
competitors include a limited number of large international food
companies, as well as a large number of smaller independent growers
and grower cooperatives. No single competitor has a dominant market
share in this industry due to the regionalized nature of these
businesses. Sun World utilizes brand recognition, product quality,
harvesting in favorable product windows, competitive pricing,
effective customer service and consumer marketing programs to
enhance its position within the highly competitive fresh food
industry. Consumer and institutional recognition of the Sun World
trademark and related brands and the association of these brands
with high quality food products contribute significantly to Sun
World's ability to compete in the market for fresh fruit and
vegetables. See "Business--Narrative Description of Business--Competition."
REGULATION
Certain areas of Sun World's operations are subject to varying
degrees of federal, state and local laws and regulations. Farm
operations such as those conducted on Sun World's properties are
subject to federal, state and local laws and regulations controlling
the discharge of materials into the environment or otherwise
relating to the protection of the environment. Environmental
regulations may have a materially adverse effect upon Sun World's
operations.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for
Exchange Notes pursuant to the Exchange Offer will continue to be
subject to the restrictions on transfer of such Old Notes as set
forth in the legend thereon as a consequence of the issuance of the
Old Notes pursuant to exemptions from, or in transactions not
subject to, the registration requirements of the Securities Act and
applicable state securities laws. In general, the Old Notes may not
be offered or sold, unless registered under the Securities Act,
except pursuant to an exemption from, or in a transaction not
subject to, the Securities Act and applicable state securities laws.
Sun World does not currently anticipate that it will register the
Old Notes under the Securities Act. Exchange Notes issued pursuant
to the Exchange Offer in exchange for Old Notes may be offered for
resale, resold or otherwise transferred by Holders thereof (other
than any such holder which is an "affiliate" of Sun World or any
guarantor within the meaning of Rule 405 under the Securities Act
and other than any broker-dealer who purchased Old Notes directly
from Sun World for resale pursuant to Rule 144A under the Securities
Act or any other available exemption under the Securities Act)
without compliance with the registration and prospectus delivery
provisions of the Securities act provided that such Exchange Notes
are acquired in the ordinary course of such holders' business and
such holders have no arrangement with any person to participate in
the distribution of such Old Notes. Each broker-dealer that
acquired Old Notes for its own account as a result of market making
or other trading activities and that receives Exchange Notes for its
own account pursuant to the Exchange Offer must acknowledge that it
will deliver a prospectus in connection with any resale of such
Exchange Notes. The Letter of Transmittal states that, by so
acknowledging and by delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be
amended or supplemented form time to time, may be used by a broker-dealer
in connection with resales of Exchange Notes received in
exchange for Old Notes where such Old Notes were acquired by such
broker-dealer as a result of market-making activities or other
trading activities. Sun World has agreed that it will make this
Prospectus available to any broker-dealer for use in connection with
any such resale. See "Plan of Distribution." However, to comply
with the securities laws of certain jurisdictions, if applicable,
the Exchange Notes may not be offered or sold unless they have been
registered or qualified for sale in such jurisdictions or an
exemption from registration or qualification is available and is
complied with. To the extent that Old Notes are tendered and
accepted in the Exchange Offer, the trading market for untendered
and tendered but unaccepted Old Notes will be adversely affected.
ABSENCE OF PUBLIC MARKET FOR THE EXCHANGE NOTES
The Exchange Notes are being offered to the holders of the Old
Notes. The Old Notes were offered and sold in April 1997 to a small
number of institutional investors and are eligible for trading in
the PORTAL market. Sun World intends to designate the Exchange
Notes in the PORTAL market.
There is currently no established market for the Exchange Notes
and there can be no assurance that a public market will develop or,
if such a market develops, as to the liquidity of such market, nor
can there be any assurance as to the ability of the holders of the
Exchange Notes to sell their Exchange Notes or the price at which
such holders would be able to sell their Exchange Notes. The
Exchange Notes will not be listed on any securities exchange. If
the Exchange Notes are traded after their initial issuance, they may
trade at a discount from their initial offering price, depending
upon prevailing interest rates, the market for similar securities,
the performance of Sun World and other factors. The Initial
Purchaser has advised Sun World that it intends to make a market in
the Exchange Notes after consummation of the Exchange Offer, as
permitted by applicable laws and regulations; however, the Initial
Purchaser is not obligated to do so and any such market-making
activity may be discontinued at any time without notice.
RISKS ASSOCIATED WITH BUSINESS OF CADIZ
ENVIRONMENTAL REGUALTION AND RISK
Water leased or sold by Cadiz may be subject to regulation as to
quality by the United States Environmental Protection Agency (the
"EPA") acting pursuant to the Federal Safe Drinking Water Act (the
"US Act"). In California, the responsibility for enforcing the US
Act is delegated to the California Department of Health Services
(the "Health Department") and to the Resources Board acting pursuant
to the California Safe Drinking Water Act (the "Cal Act"). The US
Act provides for the establishment of uniform minimum national water
quality standards, as well as governmental authority to specify the
type of treatment processes to be used for public drinking water.
Moreover, the EPA has an ongoing directive to issue regulations
under the US Act and to require disinfection of drinking water,
specification of maximum contaminant levels ("MCLS") and filtration
of surface water supplies. The Cal Act and the mandate of the
Health Department are similar to the US Act and the mandate of the
EPA, and in many instances MCLS and other requirements of the Health
Department are more restrictive than those promulgated by the EPA.
Both the EPA and the Health Department have promulgated
regulations and other pronouncements which require various testing
and sampling of water and inspections by producers which set MCLS
for numerous contaminants. Since Cadiz does not intend to sell
water directly to the consumers, these standards only affect the
water agencies that may buy or lease Cadiz' water. While
environmental regulations do not directly affect Cadiz, the
regulations regarding the quality of water distributed affects
Cadiz' intended customers and may, therefore, depending on the
quality of Cadiz' water, impact the price and terms upon which Cadiz
may in future sell its water or water rights.
POTENTIAL ADVERSE EFFECT OF RAIL-CYCLE PROJECT ON CADIZ
In November 1995, the San Bernardino County Board of Supervisors
certified the Environmental Impact Report/Environmental Impact
Statement ("EIR/EIS") for, and approved a Conditional Use Permit
for, the proposed construction and operation of a landfill adjacent
to Cadiz' non-Sun World properties located near Cadiz, California
(the "Rail-Cycle Project"). Cadiz contends that the Rail-Cycle
Project, as currently designed, poses environmental risks to both
agricultural operations at Cadiz and to the groundwater basin
underlying the Cadiz property. Cadiz has vigorously opposed the
Rail-Cycle Project on a number of grounds and has filed a lawsuit
seeking, among other things, to set aside the County's certification
of the EIR/EIS and approval of the proposed project. There can be
no assurances as to the outcome of Cadiz' lawsuit. Furthermore, the
Board of Supervisors decided to require a business license tax to be
levied against the Rail-Cycle Project which, prior to adoption,
requires approval by a majority vote in a general election. Cadiz
believes that the Rail-Cycle Project, if constructed and operated as
proposed, will have a materially adverse impact upon Cadiz'
business. See "Business -Legal Proceedings." However, management
is unable to predict the magnitude of such impact, if any, at this
time.
DEVELOPMENT STAGE RISKS OF PROSPOSED COMMERCIAL PRODUCTION AND TRANSFER
OF WATER
Cadiz anticipates that it will continue to incur operating losses
from its non-Sun World operations until such time as it is able to
receive significant revenues from the development of its water
transfer projects. Additional financing specifically in connection
with Cadiz' water projects will be required. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations." In addition to the risk of delays associated with
receiving all necessary regulatory approvals and permits, Cadiz may
also encounter unforeseen technical difficulties which could result
in construction delays and cost increases with respect to Cadiz'
water transfer projects. Cadiz is continuing to negotiate the
specific terms of water delivery and/or storage arrangements with
various California water agencies. However, the outcome of these
negotiations cannot be predicted with any degree of certainty.
There can be no assurances as to the amount of water which will be
able to deliver or store under such arrangements, nor as to the
price which Cadiz will be able to obtain. Furthermore, Cadiz has no
experience to date in the commercial production and delivery of
water in large amounts on a long-term basis. There is, therefore, a
limited historical basis on which to evaluate future performance of
Cadiz' proposed operations in this area.
COMPETITION
Cadiz faces competition for the acquisition, development and sale
of its properties from a number of competitors, some of which have
significantly greater resources than Cadiz. Cadiz may also face
competition in the development of water resources associated with
its properties. Since California has scarce water resources and an
increasing demand for available water, Cadiz believes that price and
reliability of delivery are the principal competitive factors
affecting transfers of water in California. In this regard, the
ability of Cadiz to price its water on a competitive basis will
depend upon the cost of constructing and maintaining delivery
systems for its surplus water. See "Business--Competition."
SIGNIFICANT LEVERAGE AND WORKING CAPITAL REQUIREMENTS
As a result of the Sun World Acquisition, Cadiz' capital
structure is significantly leveraged. On April 16, 1997, Cadiz
completed a restructuring of its indebtedness. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources." After giving effect
to the restructuring, Cadiz has approximately $10 million of
indebtedness outstanding due April 30, 1998 (with provisions for
extensions, if required), and Sun World has $120 million of
indebtedness outstanding (including $115,000,000 of Old Notes) and
$30 million of borrowing availability under the Revolving Credit
Agreement. Cadiz indebtedness is secured by substantially all of
Cadiz' non-Sun World assets. Sun World will depend on the Revolving
Credit Agreement to meet its significant seasonal working capital
needs in 1997. Management anticipates that the credit available under
the Revolving Credit Agreement will be sufficient to meet Sun World's
current seasonal requirements, although no assurances can be given.
See "Risk Factors--Seasonality" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity
and Capital Resources."
The degree to which Cadiz' capital structure is leveraged could
impair both Cadiz' and Sun World's access to additional financing in
the future for working capital, capital expenditures, acquisitions,
and general or other corporate purposes. The ability of Cadiz and
Sun World to generate sufficient working capital and cash flow
needed for ongoing debt service and working capital needs depends on
the future performance of Cadiz and Sun World.
LIMITATIONS ON ACCESS TO SUN WORLD CASH FLOW AND DIVIDENDS
Cadiz' ability to receive distributions from Sun World's cash
flow is restricted by a series of covenants in the Indenture that
allow for the payment of dividends subject to meeting certain tests
and ratios.
REGULATORY APPROVALS
As Cadiz proceeds with the development of its properties,
including related infrastructure, Cadiz will be required to satisfy
various regulatory authorities that it is in compliance with the
laws, regulations and policies enforced by such authorities.
Groundwater development, and the export of surplus groundwater for
sale to single entities such as public water agencies, are not
subject to regulation by existing statutes, other than general
environmental statutes applicable to all development projects.
Management cannot predict with certainty what requirements, if any,
may be imposed by regulators upon future development. In addition,
the time and costs associated with obtaining regulatory approvals
for resource development are significant, and there can be no
assurance that Cadiz will receive desired approvals for future
development plans.
USE OF PROCEEDS
There will be no cash proceeds to Sun World resulting from the
Exchange Offer.
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The Old Notes were originally issued and sold on April 16, 1997.
The offer and sale of the Old Notes was not required to be
registered under the Securities Act in reliance upon the exemption
provided by Section 4(2) of the Securities Act. In connection with
the sale of the Old Notes, Sun World agreed to use its best efforts
to cause to be filed with the Commission a registration statement
relating to an exchange offer pursuant to which a new first mortgage
of Sun World covered by such registration statement and containing
terms identical in all material respects to the terms of the Old
Notes would be offered in exchange for Old Notes tendered at the
option of the holders thereof, or, if applicable interpretations of
the staff of the Commission did not permit Sun World to effect such
an Exchange Offer, Sun World agreed to file a shelf registration
statement covering resales of the Old Notes (the "Shelf Registration
Statement") and use its best efforts to have such Shelf Registration
Statement become effective under the Securities Act and to keep
effective the Shelf Registration Statement for at least two years
after April 16, 1997.
The purpose of the Exchange Offer is to fulfill certain of Sun
World's obligations under the Registration Rights Agreement. Except
as otherwise expressly set forth herein, this Prospectus may not be
used by any holder of the Old Notes or any holder of the Exchange
Notes to satisfy the registration and prospectus delivery
requirements under the Securities Act that may apply in connection
with any resale of such Old Notes or Exchange Notes. See "The
Exchange Offer--Terms of the Exchange."
Each broker-dealer that receives Exchange Notes for its own
account in exchange for Old Notes, where such Old Notes were
acquired by such broker-dealer as a result of market-making
activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of such
Exchange Notes. See "Plan of Distribution." Broker-dealers who did
not so acquire Old Notes are not eligible to participate in the
Exchange Offer.
TERMS OF THE EXCHANGE
Sun World hereby offers to exchange, subject to the conditions
set forth herein and in the Letter of Transmittal accompanying this
Prospectus, $1,000 in principal amount of Exchange Notes for each
$1,000 in principal amount of Old Notes. The terms of the Exchange
Notes are identical in all material respects to the terms of the Old
Notes for which they may be exchanged pursuant to this Exchange
Offer, except that the Exchange Notes will generally be freely
transferable by holders thereof and will not be subject to any
covenant regarding registration. The Exchange Notes will evidence
the same indebtedness as the Old Notes and will be entitled to the
benefits of the Indenture. See "Description of Exchange Notes."
The Exchange Offer is not conditioned upon any minimum aggregate
principal amount of Old Notes being tendered for exchange.
Sun World has not requested, and does not intend to request, an
interpretation by the staff of the Commission with respect to
whether the Exchange Notes issued pursuant to the Exchange Offer in
exchange for the Old Notes may be offered for sale, resold or
otherwise transferred by any holder without compliance with the
registration and prospectus delivery provisions of the Securities
Act. Instead, based on an interpretation by the staff of the
Commission set forth in a series of no-action letters issued to
third parties (see Exxon Capital Holdings Corp. (available April 13,
1989), Morgan Stanley & Co. Incorporated (available June 5, 1991)
and Shearman & Sterling (available July 2, 1993)), Sun World
believes that Exchange Notes issued pursuant to the Exchange Offer
in exchange for Old Notes may be offered for resale, resold and
otherwise transferred by any holder of such Exchange Notes (other
than any such holder that is an "affiliate" of Sun World within the
meaning of Rule 405 under the Securities Act) without compliance
with the registration and prospectus delivery provisions of the
Securities Act, provided that such Exchange Notes are acquired in
the ordinary course of such holder's business and such holder has no
arrangement or understanding with any person to participate in the
distribution of such Exchange Notes and neither such holder nor any
other such person is engaging in or intends to engage in the
distribution of such Exchange Notes. Since the Commission has not
considered the Exchange Offer in the context of a no-action letter,
there can be no assurance that the staff of the Commission would
make a similar determination with respect to the Exchange Offer.
Any holder who is an affiliate of Sun World or who tenders in the
Exchange Offer for the purpose of participating in a distribution of
the Exchange Notes cannot rely on such interpretation by the staff
of the Commission and must comply with the registration and
prospectus delivery requirements of the Securities Act in connection
with any resale transaction. Each holder must acknowledge that it
has no arrangement or understanding with any person to participate
in the distribution of Exchange Notes. Each broker-dealer that
receives Exchange Notes for its own account in exchange for Old
Notes, where such Old Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities, must
acknowledge that it will deliver a prospectus in connection with any
resale of such Exchange Notes. See "The Exchange Offer--Terms and
Conditions of the Letter of Transmittal" and "Plan of Distribution."
Broker-dealers who did not so acquire Old Notes are not eligible to
participate in the Exchange Offer.
Interest on the Exchange Notes shall accrue from the last
Interest Payment Date on which interest was paid on the Old Notes so
surrendered or, if no interest has been paid on such Old Notes, from
April 16, 1997.
Tendering holders of the Old Notes shall not be required to pay
brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange
of the Old Notes pursuant to the Exchange Offer.
EXPIRATION DATE; EXTENSION; TERMINATION; AMENDMENTS
The Exchange Offer shall expire on the Expiration Date. The term
"Expiration Date" means 5:00 p.m., New York City time, on
___________, 1997, unless Sun World in its sole discretion extends
the period during which the Exchange Offer is open, in which event
the term "Expiration Date" shall mean the latest time and date on
which the Exchange Offer, as so extended by Sun World, shall expire.
Sun World reserves the right to extend the Exchange Offer at any
time and from time to time by giving oral or written notice to IBJ
Schroder Bank & Trust Company (the "Exchange Agent") and by timely
public announcement communicated, unless otherwise required by
applicable law or regulation, by making a release to the Dow Jones
News Service. During any extension of the Exchange Offer, all Old
Notes previously tendered and not withdrawn pursuant to the Exchange
Offer will remain subject to the Exchange Offer.
The term "Exchange Date" means the first business day following
the Expiration Date. Sun World expressly reserves the right to (i)
terminate the Exchange Offer and not accept for exchange any Old
Notes if any of the events set forth below under "Conditions to the
Exchange Offer" shall have occurred and shall not have been waived
by Sun World and (ii) amend the terms of the Exchange Offer in any
manner which, in its good faith judgment, is advantageous to the
holders of the Old Notes, whether before or after any tender of the
Old Notes. Unless Sun World terminates the Exchange Offer prior to
5:00 p.m., New York City time, on the Expiration Date, Sun World
will exchange the Exchange Notes for the Old Notes on the Exchange
Date.
TENDER PROCEDURE
The tender to Sun World of Old Notes by a holder thereof pursuant
to one of the procedures set forth below and the acceptance thereof
by Sun World will constitute a binding agreement between such holder
and Sun World in accordance with the terms and subject to the
conditions set forth herein and in the Letter of Transmittal. This
Prospectus, together with the Letter of Transmittal, will first be
sent out on or about ___________, 1997, to all holders of Old Notes
known to Sun World and the Exchange Agent.
A holder of Old Notes may tender the same by (i) properly
completing and signing the Letter of Transmittal or a facsimile
thereof (all references in this Prospectus to the Letter of
Transmittal shall be deemed to include a facsimile thereof) and
delivering the same, together with the certificate or certificates
representing the Old Notes being tendered and any required signature
guarantees and any other documents required by the Letter of
Transmittal, to the Exchange Agent at its address set forth on the
Letter of Transmittal on or prior to the Expiration Date (or
complying with the procedure for book-entry transfer described
below) or (ii) complying with the guaranteed delivery procedures
described below.
If tendered Old Notes are registered in the name of the signer of
the Letter of Transmittal and the Exchange Notes to be issued in
exchange therefor are to be issued (and any untendered Old Notes are
to be reissued) in the name of the registered holder (which term,
for the purposes described herein, shall include any participant in
The Depository Trust Company (also referred to as a "book-entry
transfer facility") whose name appears on a security listing as the
owner of Old Notes), the signature of such signer need not be
guaranteed. In any other case, the tendered Old Notes must be
endorsed or accompanied by written instruments of transfer in form
satisfactory to Sun World and duly executed by the registered
holder, and the signature on the endorsement or instrument of
transfer must be guaranteed by a commercial bank or trust company
located or having an office, branch, agency or correspondent in the
United States, or by a member firm of a registered national
securities exchange or of the National Association of Securities
Dealers, Inc. (any of the foregoing hereinafter referred to as an
"Eligible Institution"). If the Exchange Notes and/or Old Notes not
exchanged are to be delivered to an address other than that of the
registered holder appearing on the note register for the Old Notes,
the signature in the Letter of Transmittal must be guaranteed by an
Eligible Institution.
THE METHOD OF DELIVERY OF NOTES AND ALL OTHER DOCUMENTS IS AT THE
ELECTION AND RISK OF THE HOLDER. IF SENT BY MAIL, IT IS RECOMMENDED
THAT REGISTERED MAIL, RETURN RECEIPT REQUESTED, BE USED, PROPER
INSURANCE OBTAINED, AND THE MAILING BE MADE SUFFICIENTLY IN ADVANCE
OF THE EXPIRATION DATE TO PERMIT DELIVERY TO THE EXCHANGE AGENT ON
OR BEFORE THE EXPIRATION DATE. NO LETTERS OF TRANSMITTAL OR NOTES
SHOULD BE SENT TO SUN WORLD.
The Exchange Agent will make a request promptly after the date of
this Prospectus to establish accounts with respect to the Old Notes
at the book-entry transfer facility for the purpose of facilitating
the Exchange Offer, and subject to the establishment thereof, any
financial institution that is a participant in the book-entry
transfer facility system may make book-entry delivery of Old Notes
by causing such book-entry transfer facility to transfer such Old
Notes into the Exchange Agent's account with respect to the Old
Notes in accordance with the book-entry transfer facility's
procedures for such transfer. Although delivery of Old Notes may be
effected through book-entry transfer into the Exchange Agent's
accounts at the book-entry transfer facility, an appropriate Letter
of Transmittal with any required signature guarantee and all other
required documents must in each case be transmitted to and received
or confirmed by the Exchange Agent at its address set forth on the
Letter of Transmittal on or prior to the Expiration Date, or, if the
guaranteed delivery procedures described below are complied with,
within the time period provided under such procedures.
If a holder desires to accept the Exchange Offer and time will
not permit a Letter of Transmittal or Old Notes to reach the
Exchange Agent before the Expiration Date or the procedure for
book-entry transfer cannot be completed on a timely basis, a tender
may be effected if the Exchange Agent has received at its office
listed on the Letter of Transmittal on or prior to the Expiration
Date a letter, telegram or facsimile transmission (receipt confirmed
by telephone and an original delivered by guaranteed overnight
courier) from an Eligible Institution setting forth the name and
address of the tendering holder, the names in which the Old Notes
are registered and, if possible, the certificate numbers of the Old
Notes to be tendered, and stating that the tender is being made
thereby and guaranteeing that three New York Stock Exchange trading
days after the date of execution of such letter, telegram or
facsimile transmission by the Eligible Institution, the Old Notes,
in proper form for transfer (or a confirmation of book-entry
transfer of such Old Notes into the Exchange Agent's account at the
book-entry facility), will be delivered by such Eligible Institution
together with a properly completed and duly executed Letter of
Transmittal (and any other required documents). Unless Old Notes
being tendered by the above-described method are deposited with the
Exchange Agent within the time period set forth above (accompanied
or preceded by a properly completed Letter of Transmittal and any
other required documents), Sun World may, at its option, reject the
tender. Copies of a notice of Guaranteed Delivery which may be used
by Eligible Institutions for the purposes described in this
paragraph are available from the Exchange Agent.
A tender will be deemed to have been received as of the date when
(i) the tendering holder's properly completed and duly signed Letter
of Transmittal accompanied by the Old Notes (or a confirmation of
book-entry transfer of such Old Notes into the Exchange Agent's
account at the book-entry transfer facility) is received by the
Exchange Agent, or (ii) a Notice of Guaranteed Delivery or letter,
telegram or facsimile transmission to similar effect (as provided
above) from an Eligible Institution is received by the Exchange
Agent. Issuances of Exchange Notes in exchange for Old Notes
tendered pursuant to a Notice of Guaranteed Delivery or letter,
telegram or facsimile transmission to similar effect (as provided
above) by an Eligible Institution will be made only against deposit
of the Letter of Transmittal (and any other required documents) and
the tendered Old Notes.
All questions as to the validity, form, eligibility (including
time of receipt) and acceptance for exchange of any tender of Old
Notes will be determined by Sun World, whose determination will be
final and binding. Sun World reserves the absolute right to reject
any Old Notes not properly tendered or the acceptance for exchange
of which may, in the opinion of Sun World's counsel, be unlawful.
Sun World also reserves the absolute right to waive any of the
conditions of the Exchange Offer or any defect or irregularity in
the tender of any Old Notes. Unless waived, any defects or
irregularities in connection with tenders of Old Notes for exchange
must be cured within such reasonable period of time as Sun World
shall determine. None of Sun World, the Exchange Agent or any other
person will be under any duty to give notification of any defects or
irregularities in tenders or incur any liability for failure to give
any such notification.
Each broker-dealer that receives Exchange Notes for its own
account in exchange for Old Notes, where such Old Notes were
acquired by such broker-dealer as a result of market-making
activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of such
Exchange Notes. See "Plan of Distribution." Broker-dealers who did
not so acquire Old Notes are not eligible to participate in the
Exchange Offer.
TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL
The Letter of Transmittal contains, among other things, the
following terms and conditions, which are part of the Exchange
Offer.
The party tendering Old Notes for exchange (the "Transferor")
exchanges, assigns and transfers the Old Notes to Sun World and
irrevocably constitutes and appoints the Exchange Agent as the
Transferor's agent and attorney-in-fact to cause the Old Notes to be
assigned, transferred and exchanged. The Transferor represents and
warrants that it has full power and authority to tender, exchange,
assign and transfer the Old Notes and to acquire Exchange Notes
issuable upon the exchange of such tendered Old Notes, and that,
when the same are accepted for exchange, Sun World will acquire good
and unencumbered title to the tendered Old Notes, free and clear of
all liens, restrictions, charges and encumbrances and not subject to
any adverse claim. The Transferor also warrants that it will, upon
request, execute and deliver any additional documents deemed by the
Exchange Agent or Sun World to be necessary or desirable to complete
the exchange, assignment and transfer of tendered Old Notes or
transfer ownership of such Old Notes on the account books maintained
by a book-entry transfer facility. The Transferor further agrees
that acceptance of any tendered Old Notes by Sun World and the
issuance of Exchange Notes in exchange therefor shall constitute
performance in full by Sun World of certain of its obligations under
the Registration Rights Agreement. All authority conferred by the
Transferor will survive the death or incapacity of the Transferor
and every obligation of the Transferor shall be binding upon the
heirs, legal representatives, successors, assigns, executors and
administrators of such Transferor.
By tendering, each holder of Old Notes will represent to Sun
World that, among other things, (i) such Holder is not an
"affiliate" of Sun World within the meaning of Rule 405 under the
Securities Act, (ii) Exchange Old Notes to be acquired by such
holder of Old Notes in connection with the Exchange Offer are being
acquired by such holder in the ordinary course of business of such
holder and (iii) such holder has no arrangement or understanding
with any person to participate in the distribution of the Exchange
Notes. If the holder is a broker-dealer that will receive Exchange
Notes for such holder's own account in exchange for Old Notes that
were acquired as a result of market-making activities or other
trading activities, such holder will be required to acknowledge in
the Letter of Transmittal that such holder will deliver a prospectus
in connection with any resale of such Exchange Notes; however, by so
acknowledging and by delivering a prospectus, such holder will not
be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act. See "Plan of Distribution." This Prospectus,
as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Notes
received in exchange for Old Notes where such Old Notes were
acquired by such broker-dealer as a result of market-making
activities or other trading activities. Sun World will, for a period
of 180 days after the Expiration Date, make copies of this
Prospectus available to any broker-dealer for use in connection with
any such resale. Other broker-dealers are not eligible to
participate in the Exchange Offer.
WITHDRAWAL RIGHTS
Tenders of Old Notes pursuant to the Exchange Offer may be
withdrawn at any time prior to the Expiration Date.
To be effective, a written, telegraphic, telex or facsimile
transmission notice of withdrawal must be timely received by the
Exchange Agent at its address set forth on the Letter of
Transmittal, and with respect to a facsimile transmission, must be
confirmed by telephone and an original delivered by guaranteed
overnight delivery. Any such notice of withdrawal must specify the
person named in the Letter of Transmittal as having tendered Old
Notes to be withdrawn, the certificate numbers of Old Notes to be
withdrawn, the principal amount of Old Notes to be withdrawn, a
statement that such holder is withdrawing his election to have such
Old Notes exchanged, and the name of the registered holder of such
Old Notes, and must be signed by the holder in the same manner as
the original signature on the Letter of Transmittal (including any
required signature guarantees) or be accompanied by evidence
satisfactory to Sun World that the person withdrawing the tender has
succeeded to the beneficial ownership of the Old Notes being
withdrawn. The Exchange Agent will return the properly withdrawn
Old Notes promptly following receipt of notice of withdrawal. If
Old Notes have been tendered pursuant to the procedure for
book-entry transfer, any notice of withdrawal must specify the name
and number of the account at the book-entry transfer facility to be
credited with the withdrawn Old Notes or otherwise comply with the
book-entry transfer procedure. All questions as to the validity of
notices of withdrawals, including time of receipt, will be
determined by Sun World and such determination will be final and
binding on all parties.
Any Old Notes so withdrawn will be deemed not to have been
validly tendered for exchange for purposes of the Exchange Offer.
Any Old Notes which have been tendered for exchange but which are
not exchanged for any reason will be returned to the holder thereof
without cost to such holder (or, in the case of Old Notes tendered
by book-entry transfer into the Exchange Agent's account at the
book-entry transfer facility pursuant to the book-entry transfer
procedures described above, such Old Notes will be credited to an
account with such book-entry transfer facility specified by the
holder) as soon as practicable after withdrawal, rejection of tender
or termination of the Exchange Offer. Properly withdrawn Old Notes
may be retendered by following one of the procedures described under
"The Exchange Offer--Tender Procedure" at any time on or prior to
the Expiration Date.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES
Upon the satisfaction or waiver, prior to the Expiration Date, of
all the terms and conditions of the Exchange Offer, the acceptance
for exchange of Old Notes validly tendered and not withdrawn and
issuance of the Exchange Notes will be made on the Exchange Date.
For the purposes of the Exchange Offer, Sun World shall be deemed to
have accepted for exchange validly tendered Old Notes when, as and
if Sun World has given oral or written notice thereof to the
Exchange Agent.
The Exchange Agent will act as agent for the tendering holders of
Old Notes for the purposes of receiving Exchange Notes from Sun
World and causing the Old Notes to be assigned, transferred and
exchanged. Upon the terms and subject to the conditions of the
Exchange Offer, delivery of Exchange Notes to be issued in exchange
for accepted Old Notes will be made by the Exchange Agent promptly
after acceptance of the tendered Old Notes. Tendered Old Notes not
accepted for exchange by Sun World will be returned without expense
to the tendering holders promptly following the Expiration Date or,
if Sun World terminated the Exchange Offer prior to the Expiration
Date, promptly after the Exchange Offer is so terminated.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, or any
extension of the Exchange Offer, Sun World will not be required to
issue Exchange Notes in respect of any properly tendered Old Notes
not previously accepted and may terminate the Exchange Offer (by
oral or written notice to the Exchange Agent and by timely public
announcement communicated, unless otherwise required by applicable
law or regulation, by making a release to the Dow Jones News
Service), or, at its option, modify or otherwise amend the Exchange
Offer, if any of the following events occur:
(a) any law, rule or regulation or applicable interpretations of
the staff of the Commission which, in the good faith determination
of Sun World, do not permit Sun World to effect the Exchange Offer;
or
(b) there shall occur a change in the current interpretation by
the staff of the Commission which permits the Exchange Notes issued
pursuant to the Exchange Offer in exchange for Old Notes to be
offered for resale, resold and otherwise transferred by holders
thereof (other than any such holder that is an "affiliate" of Sun
World within the meaning of Rule 405 under the Securities Act)
without compliance with the registration and prospectus delivery
provisions of the Securities Act provided that such Exchange Notes
are acquired in the ordinary course of such holders' business and
such holders have no arrangements with any person to participate in
the distribution of such Exchange Notes; or
(c) there shall have occurred (i) any general suspension of or
general limitation on prices for, or trading in, securities on any
national securities exchange or in the over-the-counter market, (ii)
any limitation by any governmental agency or authority which may
adversely affect the ability of Sun World to complete the
transactions contemplated by the Exchange Offer, (iii) a declaration
of a banking moratorium or any suspension of payments in respect of
banks in the United States or any limitation by any governmental
agency or authority which adversely affects the extension of credit
or (iv) a commencement of a war, armed hostilities or other similar
international calamity directly or indirectly involving the United
States, or, in the case of any of the foregoing existing at the time
of the commencement of the Exchange Offer, a material acceleration
or worsening thereof; or
(d) any change (or any development involving a prospective
change) shall have occurred or be threatened in the business,
properties, assets, liabilities, financial condition, operations,
results of operations or prospects of Sun World that is or may be
adverse to Sun World, or Sun World shall have become aware of facts
that have or may have adverse significance with respect to the value
of the Old Notes or the Exchange Notes; which, in the reasonable
judgment of Sun World in any case, and regardless of the
circumstances (including any action by Sun World) giving rise to any
such condition, makes it inadvisable to proceed with the Exchange
Offer and/or with such acceptance for exchange or with such
exchange.
Sun World expressly reserves the right to terminate the Exchange
Offer and not accept for exchange any Old Notes upon the occurrence
of any of the foregoing conditions (which represent all of the
material conditions to the acceptance by Sun World of properly
tendered Old Notes). In addition, Sun World may amend the Exchange
Offer at any time prior to the Expiration Date if any of the
conditions set forth above occur. Moreover, regardless of whether
any of such conditions has occurred, Sun World may amend the
Exchange Offer in any manner which, in its good faith judgment, is
advantageous to holders of the Old Notes.
The foregoing conditions are for the sole benefit of Sun World
and may be waived by Sun World, in whole or in part, in the
reasonable judgment of Sun World. Any determination made by Sun
World concerning an event, development or circumstance described or
referred to above will be final and binding on all parties.
Sun World is not aware of the existence of any of the foregoing
events.
EXCHANGE AGENT
IBJ Schroder Bank & Trust Company has been appointed as the
Exchange Agent for the Exchange Offer. Letters of Transmittal must
be addressed to the Exchange Agent at its address set forth on the
Letter of Transmittal. IBJ Schroder Bank & Trust Company also acts
as Trustee and Registrar (the "Registrar") under the Indenture.
DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ON THE LETTER OF
TRANSMITTAL, OR TRANSMISSIONS OF INSTRUCTIONS VIA A FACSIMILE OR
TELEX NUMBER OTHER THAN THE ONES SET FORTH ON THE LETTER OF
TRANSMITTAL, WILL NOT CONSTITUTE A VALID DELIVERY.
SOLICITATION OF TENDERS; EXPENSES
Sun World has not retained any dealer-manager or similar agent
in connection with the Exchange Offer and will not make any payments
to brokers, dealers or others for soliciting acceptances of the
Exchange Offer. Sun World will, however, pay the Exchange Agent
reasonable and customary fees for its services and will reimburse it
for reasonable out-of-pocket expenses in connection therewith. Sun
World will also pay brokerage houses and other custodians, nominees
and fiduciaries the reasonable out-of-pocket expenses incurred by
them in forwarding copies of this and related documents to the
beneficial owners of the Old Notes and in handling or forwarding
tenders for their customers.
No person has been authorized to give any information or to make
any representation in connection with the Exchange Offer other than
those contained in this Prospectus. If given or made, such
information or representations should not be relied upon as having
been authorized by Sun World. Neither the delivery of this
Prospectus nor any exchange made hereunder shall, under any
circumstances, create any implication that there has been no change
in the affairs of Sun World since the respective dates as of which
information is given herein. The Exchange Offer is not being made
to (nor will tenders be accepted from or on behalf of) holders of
Old Notes in any jurisdiction in which the making of the Exchange
Offer or the acceptance thereof would not be in compliance with the
laws of such jurisdiction. However, Sun World may, at its
discretion, take such action as it may deem necessary to make the
Exchange Offer in any such jurisdiction and extend the Exchange
Offer to holders of Old Notes in such jurisdiction. In any
jurisdiction in which the securities laws or blue sky laws of which
require the Exchange Offer to be made by a licensed broker or
dealer, the Exchange Offer is being made on behalf of Sun World by
one or more registered brokers or dealers which are licensed under
the laws of such jurisdiction.
TRANSFER TAXES
Holders who tender their Old Notes for exchange will not be
obligated to pay any transfer taxes in connection therewith, except
that holders who instruct Sun World to register Exchange Notes in
the name of, or request that Old Notes not tendered or not accepted
in the Exchange Offer be returned to, a person other than the
registered tendering holder will be responsible for the payment of
any applicable transfer tax thereon.
EFFECTS OF TENDERING ON HOLDERS OF OLD NOTES
Participation in the Exchange Offer is voluntary, and holders of
Old Notes should carefully consider whether to participate. Holders
of the Old Notes are urged to consult their financial and tax
advisors in making their own decisions on which action to take.
As a result of the making of, and upon acceptance for exchange
of all validly tendered Old Notes pursuant to the terms of, this
Exchange Offer, Sun World will have fulfilled certain covenants
contained in the Registration Rights Agreement. Holders of Old
Notes who do not tender their Old Notes in the Exchange Offer will
continue to hold such Old Notes and will be entitled to all the
rights, and limitations applicable thereto, under the Indenture,
except for such rights under the Registration Rights Agreement that
by their terms terminate or cease to have further effectiveness as a
result of the making of this Exchange Offer. See "Description of
Exchange Notes."
Sun World may in the future seek to acquire untendered Old Notes
in open market or privately negotiated transactions, through
subsequent exchange offers or otherwise. Sun World has no present
plan to acquire any Old Notes which are not tendered in the Exchange
Offer.
CONSEQUENCE OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for
Exchange Notes pursuant to the Exchange Offer will continue to be
subject to the restrictions on transfer of such Old Notes as set
forth in the legend thereon as a consequence of the offer or sale of
the Old Notes pursuant to an exemption from, or in a transaction not
subject to, the registration requirements of the Securities Act and
applicable state securities laws. In general, the Old Notes may not
be offered or sold, unless registered under the Securities Act,
except pursuant to an exception from, or in a transaction not
subject to, the Securities Act and applicable states securities
laws. Sun World does not currently anticipate that it will register
the Old Notes under the Securities Act. See "Risk Factors--Consequences
of Failure to Exchange."
CAPITALIZATION
The following table sets forth (i) the historical consolidated
capitalization of Cadiz as of June 30, 1997 and (ii) the consolidated
capitalization of Cadiz, as adjusted, at that date to give effect to the
Exchange Offer. This table should be read in conjunction with the
Consolidated Financial Statements of Cadiz, including the related notes
thereto, included elsewhere in this Prospectus.
As of June 30, 1997
--------------------
Historical As Adjusted
---------- -----------
($ in millions)
Short-term debt:
Revolving Credit Agreement. . . . . $ 16.9 $ 16.9
Long-term debt:
First Mortgage Notes - Series A . . 115.0 0.0
First Mortgage Notes - Series B . . 0.0 115.0
ING Note at Cadiz . . . . . . . . . 9.7 9.7
Other senior debt at Sun World. . . 4.2 4.2
------- -------
Total debt. . . . . . . . . . . . . . 145.8 $ 145.8
Redeemable preferred stock,
preferred stock, common
stock and other stockholders' equity 46.4 46.4
------ -------
Total capitalization. . . . . . . . .$192.2 $ 192.2
====== =======
Ratio of debt to total capitalization 75.9% 75.9%
====== =======
CADIZ LAND COMPANY, INC.
Unaudited Pro Forma Condensed Consolidated Financial Information
The following unaudited pro forma statement of operations for the nine
months ended December 31, 1996 gives effect to the following transactions
as if they had occurred on April 1, 1996: (i) the Sun World Acquisition;
and (ii) the Offering and the Related Transactions.
The pro forma adjustments include, among others, decreased interest expense
as a result of the Offering and the Related Transactions and increased
depreciation as a result of the purchase price allocation. The pro forma
adjustments do not reflect the elimination of charges directly attributable
to the Chapter 11 bankruptcy proceedings which are not expected to recur
subsequent to the emergence from bankruptcy effective September 13, 1996.
See footnote (h) for a more detailed explanation of charges directly
attributable to Sun World's emergence from bankruptcy.
The pro forma combined financial information should be read in conjunction
with the historical financial statements of Cadiz, for the nine months
ended December 31, 1996, which are included elsewhere herein, as well as
the historical financial statements of Sun World for the period January 1,
1996 through September 13, 1996 which are included elsewhere herein, from
which the pro forma combined statement of operations has been derived.
The following unaudited pro forma combined Statement of Operations is
presented for informational purposes only and is not necessarily indicative
of the results of operations that would have occurred if the acquisition
had been consummated as of April 1, 1996, nor is it necessarily indicative
of the future operating results of Cadiz.
CADIZ LAND COMPANY, INC.
Pro Forma Combined Statement of Operations for the nine months ended
December 31, 1996
(In thousands except per share data)
(Unaudited)
Pro
Sun World Forma
Cadiz Interna- Adjust- Pro
Land tional ments Pro Offering Forma
Company Inc. Increase Forma Adjust- as
(a) (b) (Decrease) Combined ments Adjusted
-------- -------- -------- --------- -------- --------
Revenues $ 23,780 $ 74,230 $ -0- $ 98,010 $ -0- $ 98,010
-------- -------- --------- -------- ------- -------
Costs and
expenses:
Cost of
sales 17,725 52,596 (148)(c) 70,173 -0- 70,173
Resource
development 1,133 -0- -0- 1,133 -0- 1,133
Landfill
prevention
activities 394 -0- -0- 394 -0- 394
General and
administra-
tive 4,924 3,358 (504)(c) 7,778 -0- 7,778
Depreciation
and amorti-
zation 1,039 4,082 947 (d) 6,068 -0- 6,068
------- -------- ------- ------ ------- ------
Total costs
and
expenses 25,215 60,036 295 85,546 -0- 85,546
Operating
income
(loss) (1,435) 14,194 (295) 12,464 -0- 12,464
Interest
expense,
net 5,203 7,323 -0- 12,526 (1,340) 11,186
Reorganization
items -0- 4,796 -0- 4,796 -0- 4,796
------- -------- -------- ------- ----- ------
Net income
(loss)
before taxes(6,638) 2,075 (295) (4,858) (1,340) (3,518)
Income tax
benefit (641) -0- -0- (641) -0- (641)
-------- ------- -------- ------- ------ ------
Net income
(loss) (5,997) 2,075 295 (4,217)(h) (1,340) (2,877)(h)
Less:
Preferred
stock
dividends (674) -0- (1,154)(f) (1,828) -0- (1,828)
Imputed
dividend
on
preferred
stock (2,451) -0- (272)(g) (2,723) -0- (2,723)
--------- ------ -------- ------- ------ -------
Net income
(loss)
applicable
to
common
stock $ (9,122) $ 2,075 $ (1,721) $(8,768) $ (1,340) $(7,428)
======== ======= ======== ========= ========= ========
Net loss per
common
share $ (.44) $ (.41) $ (.34)
======= ========= ========
Weighted
average
common
shares
out-
standing 20,500 21,600 21,600
======= ========= ========
The unaudited pro forma combined statement of operations has been adjusted
by the following to reflect the acquisition of Sun World by Cadiz as if it
were effective at April 1, 1996:
(a) Derived from the consolidated financial statements of Cadiz for
the period April 1, 1996 to December 31, 1996, which statements
have been audited by Price Waterhouse LLP, independent accountants,
as indicated in their report included elsewhere herein and which
include, on a consolidated basis, the results of operations for
Cadiz for the period April 1, 1996 to December 31, 1996 and those
of Sun World for the period September 14, 1996 (the date subsequent
to the Sun World acquisition) to December 31, 1996.
(b) The activity for Sun World (pre-acquisition) for the period April
1, 1996 through September 13, 1996 was derived by subtracting the
activity of Sun World for the period January 1, 1996 through
March 31, 1996, which period was unaudited, from the consolidated
financial statements of Sun World for the period January 1, 1996
through September 13, 1996 (the date of the Sun World
acquisition), which statements have been audited by Price
Waterhouse LLP, independent accountants, as indicated in their
report included elsewhere herein.
(c) Represents reductions of costs and expenses resulting from a
number of initiatives including elimination of overstaffing and
redundant staffing throughout Sun World and reduction of labor
and rent made possible by the closing of the Sun World
administrative headquarters and consolidating these operations
into the Kimberlina packing facility. Liabilities related to
these employee terminations and the relocation have been accrued
in connection with the Sun World acquisition pursuant to the
Financial Accounting Standards Board Emerging Issues Task Force
Consensus No. 95-3, "Recognition of Liabilities in Connection
with a Business Combination."
(d) Reflects incremental depreciation expense resulting from an
increased basis of property, plant and equipment pursuant to the
purchase method of accounting. The total basis of property,
plant and equipment was increased by approximately $33 million
which will be depreciated over a period of 10 to 45 years for
land improvements and buildings and 3 to 25 years for machinery
and equipment.
(e) Interest expense based on the pro forma capitalization of Cadiz
is summarized in the table below:
Nine months
December 31,
1996
-----------
(In thousands)
Sun World First Mortgage Notes(1) . . . . . . $ 9,703
Revolving Credit Agreement(2) . . . . . . . . 825
ING Notes(3). . . . . . . . . . . . . . . . . 564
Other secured debt(4) . . . . . . . . . . . . 365
Commitment fees(5). . . . . . . . . . . . . . 75
--------
Total interest expense. . . . . . . . . . . . . 11,532
Less historical interest on debt. . . . . . . . (13,408)
------
Decrease in cash interest expense . . . . . . . (1,876)
Amortization of deferred financing costs(6) . . 536
--------
Total decrease in interest expense. . . . . . . $ (1,340)
========
- ----------------------
(1) Based upon a fixed interest rate of 11.25%.
(2) Assumes an interest rate of 8.25% on drawn balance. The pro
forma average balance drawn-down was $10.0 million. A change
of 0.125% in the interest rate would change interest expense
by $12,500 for the nine months ended December 31, 1996.
(3) Assumes an interest rate of 7.75%. A change of 0.125% in the
interest rate would change interest expense by $9,100 for the
nine months ended December 31, 1996.
(4) Based upon fixed interest rates ranging from 7.50% to 10.00%.
(5) Represents a commitment fee of 0.5% applied to the $20.0
million unused portion of the Revolving Credit Agreement.
(6) Deferred financing costs are amortized over the life of the
related debt, seven years for the First Mortgage Notes.
(f) Represents 6% preferred stock dividends for the nine month period.
(g) Assumes issuances of Series B and Series C Preferred Stock at
April 1, 1996.
(h) Includes for the nine months ended December 31, 1996, charges
incurred by Sun World totaling $4.8 million which were directly
attributable to the Chapter 11 bankruptcy proceedings and are
non-recurring in nature. Exclusion of the non-recurring charges
would have resulted in a pro forma net loss per share of $.12
for the nine months ended December 31, 1996.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
On September 13, 1996, Cadiz acquired all of the outstanding
capital stock of Sun World. The Sun World Acquisition was accounted for
on a consolidated basis using the purchase method of accounting. The
Consolidated Financial Statements of Cadiz include Sun World from the
date of acquisition. In addition, Cadiz has changed its fiscal year end
from March 31 to December 31 in order to align its year end with that of
Sun World.
RESULTS OF OPERATIONS
The financial statements set forth herein for the six months ending
June 30, 1997, reflect the results of operations on a consolidated basis
for Cadiz and its subsidiaries, including Sun World, (collectively defined
herein as the "Company") for the period January 1, 1997 through June 30,
1997. Cadiz' results of operations for the nine months ended December 31,
1996 include the results of operations for Sun World for the period September
14, 1996 through December 31, 1996. The results of operations of Sun World
prior to the September 13, 1996 acquisition date have not been consolidated
with those of the Company. As a result of the foregoing and the change of
Cadiz' fiscal year end, direct comparisons of the Company's consolidated
results of operations for (i) the six months ended June 30, 1997 with results
for the six months ended June 30, 1996 and (ii) the nine months ended
December 31,1996 with results for the fiscal year ended March 31, 1996 will
not, in the view of management of the Company, prove meaningful. Instead, a
summary of the Sun World elements which management of the Company believes
essential to an analysis of the results of operations for such periods is
presented below. For purposes of this summary, the term Sun World will be
used, when the context so requires, with respect to the operations and
activities of the Company's Sun World subsidiary, and the term Cadiz will
be used, when the context so requires, with respect to those operations and
activities of the Company not involving Sun World.
The Company's net income or loss in future fiscal periods will be
largely reflective of the operations of Sun World. Sun World conducts
its operations through four operating divisions: farming, packing,
marketing and proprietary product development. Net income from farming
operations varies from year to year primarily due to yield and pricing
fluctuations which can be significantly influenced by weather
conditions, and are, therefore, generally subject to greater annual
variation than Sun World's other divisions. However, the geographic
distribution of Sun World's farming operations and the diversity of its
crop mix makes it unlikely that adverse weather conditions would affect
all of Sun World's properties or all of its crops in any single year.
Nevertheless, as net profit from Sun World's packing, market operations
and proprietary product development tends to be more consistent from
year to year than net profit from Sun World's farming operations, Sun
World is seeking to expand volume in the packing and marketing areas by
increasing the number of growers with which Sun World maintains packing
and marketing arrangements. Sun World is also actively exploring
various domestic and international opportunities to license selected
proprietary fruit varieties.
The following discussion contains trend analysis and other forward-
looking statements within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act. Actual results could differ
materially from those projected in the forward-looking statements
throughout this document.
THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THREE MONTHS ENDED JUNE 30, 1996
- ---------------------------------------------------------------------------
The Company's agricultural operations are impacted by the general
seasonal trends that are characteristic of the agricultural industry.
Sun World has historically received the majority of its net income
during the months of June to October following the harvest and sale of
its table grape and tree fruit crops. Due to this concentrated
activity, Sun World has, therefore, historically incurred a loss with
respect to its agricultural operations in the other months during the
year.
During the current year, atypical weather conditions have resulted
in much higher than normal crop yields for table grapes and tree fruit
crops, therefore resulting in lower prices throughout the industry.
However, the Company's proprietary products such as Superior
Seedless(TM) table grapes and Black Diamond(TM) plums have allowed Sun
World to continue to command a price premium to the overall market which
has helped mitigate the difficult market conditions industry-wide.
The table below sets forth, for the periods indicated, the results
of operations for the Company's four main operating divisions (before
elimination of any interdivisional charges) as well as the categories of
costs and expenses incurred by the Company which are not included within
the divisional results (in thousands):
Three Months Ended
June 30,
----------
1997 1996
------ ------
Divisional net income (loss):
Farming $ 1,118 (426)
Packing 2,286 -0-
Marketing 1,626 -0-
Proprietary product development 298 -0-
------- -------
5,328 (426)
Landfill prevention expense 176 127
General and administrative expense 2,960 737
Depreciation and amortization expense 1,812 258
Interest expense, net 3,949 439
------- -------
Net loss $ (3,569) $ (1,987)
======= ======
The consolidated net loss for the quarter ended June 30, 1997 was
$3.6 million compared to a loss of $2.0 million for the same period last
year.
FARMING OPERATIONS. The Company's developed agricultural
properties, which total approximately 18,900 acres, are primarily
dedicated to producing permanent commercial crops. Revenues during the
quarter resulted primarily from the harvest of table grapes, sweet red
and yellow peppers and seedless watermelon from the Coachella Valley
operations and the beginning of the table grape and tree fruit harvest
from the San Joaquin Valley operations. Although yields for these crops
were higher than normal, similar high crop yields throughout the
industry have resulted in lower prices. As the Company is able to
command a premium price for its proprietary products such as Superior
Seedless(TM) table grapes and Black DiamondTM plums, the impact of the
industry-wide lower prices have been somewhat mitigated. Net income
from farming operations totaled $1.1 million for the quarter ended June
30, 1997 based upon revenues of $20.0 million offset by farming expenses
of $18.9 million. For the quarter ended June 30, 1996, the loss from
farming operations resulted primarily from the Cadiz citrus operations.
PACKING OPERATIONS. Sun World's four packing and handling
facilities contributed $6.6 million in revenues offset by $4.3 million
in expenses resulting in $2.3 million in net income from packing
operations during the quarter ended June 30, 1997. During the quarter,
the Company packed 1.3 million units and handled 3.0 million units which
represents approximately 35% of the annual volume expected to be packed
or handled. Products packed or handled during the quarter consisted of
Company-grown table grapes, sweet red and yellow peppers and seedless
watermelon in the Coachella Valley; table grapes and citrus products
packed for third party growers; and the beginning of the tree fruit and
table grape harvest in the San Joaquin Valley.
The increased yields experienced in the farming operations coupled
with increased volumes from third party growers are expected to
positively impact the packing operations for the year. As all of the
Company's packing operations are conducted through Sun World, no such
operations were conducted by the Company during the 1996 period.
Marketing operations. The Company's marketing operations include
selling, merchandising and promoting Sun World grown products, as well
as providing these services for third party growers. During the three
months ended June 30, 1997, a total of 3.4 million units were sold
primarily consisting of Company-grown table grapes, sweet red and yellow
peppers and seedless watermelon from the Coachella Valley; table grapes,
seedless watermelon, and citrus from domestic third party growers; and
Company-grown table grapes and tree fruit from the San Joaquin Valley.
These unit sales resulted in marketing revenue of $2.8 million while
marketing expenses totaled $1.2 million for the quarter ended June 30,
1997 resulting in a net income from marketing operations of $1.6
million. As all of the Company's marketing operations are conducted
through Sun World, no such operations were conducted by the Company
during the 1996 period.
Proprietary product development. Sun World has a long history of
product innovation, and its research and development center maintains a
fruit breeding program that has introduced dozens of proprietary fruit
varieties during the past five years. In addition, Sun World has a 50%
interest in American SunMelon, a partnership engaged in proprietary
development, production and marketing of seedless watermelon seed.
During the three months ended June 30, 1997, net income from proprietary
product development was $0.3 million consisting of the Company's share
of partnership income totaling $0.2 million and $0.1 million in net
research and development revenue. As proprietary product development is
conducted solely through Sun World, no such activity was conducted by
the Company during the 1996 period.
LANDFILL PREVENTION ACTIVITIES. The Company is engaged in
opposition to the proposed construction and operation of a landfill to
be located adjacent to its Cadiz Valley property, and has filed a
lawsuit seeking, among other things, to set aside regulatory approvals
for the landfill project. During the three months ended June 30, 1997,
expenses incurred in connection with activities in opposition to the
project, such as litigation costs and professional fees and expenses
totaled $0.2 million as compared to $0.1 million during the 1996 period.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses during both the three months ended June 30, 1997 and the three
months ended June 30, 1996 consisted primarily of corporate operating
expenses, professional fees and salaries. These expenses increased by
$2.2 million during the three months ended June 30, 1997 as compared to
the 1996 period primarily due to the addition of Sun World
administrative costs in the amount of $2.1 million for the three months
ended June 30, 1997.
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and
amortization expense for the quarter ended June 30, 1997 totaled $1.8
million compared to $0.3 million for the same period in 1996. The
increase is attributable to depreciation relating to the acquired Sun
World assets.
INTEREST EXPENSE. Net interest expense totaled $3.9 million during
the three months ended June 30, 1997, compared to $0.4 million during
the same period in 1996. The following table summarizes the components
of net interest expense for the two periods (in thousands):
Three Months Ended
June 30,
------
1997 1996
------ -------
Interest on outstanding debt - Sun World $ 3,523 $ -0-
Interest on outstanding debt - Cadiz 201 270
Amortization of financing costs 295 238
Interest income (70) (69)
------ ------
$ 3,949 $ 439
======= =======
The increase in interest on outstanding debt during the 1997 period is
attributable to the long-term debt acquired as part of the Sun World
acquisition. Financing costs, which include legal fees and extension
fees, are amortized over the life of the debt agreement.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
- -------------------------------------------------------------------------
The table below sets forth, for the periods indicated, the results of
operations for the Company's four main operating divisions (before
elimination of any interdivisional charges) as well as the categories of
costs and expenses incurred by the Company which are not included within
the divisional results (in thousands):
Six Months Ended
June 30,
---------
1997 1996
------ ------
Divisional net income (loss):
Farming $ 1,306 (968)
Packing 1,764 -0-
Marketing 1,422 -0-
Proprietary product development 540 -0-
------ -------
5,032 (968)
Landfill prevention expense 380 1,375
General and administrative expense 5,486 1,365
Depreciation and amortization expense 2,345 528
Interest expense 7,786 892
------- -------
Net loss $ (10,965) $ (5,128)
========= =========
The consolidated net loss for the six months ended June 30, 1997 was
$11.0 million compared to a loss of $5.1 million for the same period last
year.
FARMING OPERATIONS. Net income from farming operations, totalled
$1.3 million for the six months ended June 30, 1997, primarily resulting
from the harvest of table grapes, sweet red and yellow peppers and
seedless watermelon from the Coachella Valley operations and the beginning
of the table grape and tree fruit harvest from the San Joaquin Valley
operations. Farming revenues were $22.3 million and farming expenses were
$21.0 million for the six months ended June 30, 1997. Due to the higher
than normal crop yield industry-wide, prices have been lower which reduces
farming earnings. The Company's proprietary products such as Superior
Seedless(TM) table grapes and Black Diamond(TM) plums have allowed Sun
World to continue to command a price premium to the overall market which
has helped mitigate the difficult market conditions industry-wide. For
the six months ended June 30, 1996, the $1.0 million loss from farming
operations resulted primarily from the Cadiz citrus operations.
PACKING OPERATIONS. Sun World's four packing and handling facilities
contributed $1.8 million in profit during the six months ended June 30,
1997. During the six month period, the Company packed 1.7 million units
and handled 3.5 million units which primarily consisted of Company-grown
table grapes, sweet red and yellow peppers and seedless watermelon in the
Coachella Valley; table grapes and citrus products packed for third party
growers; and the beginning of the tree fruit and table grape harvest in
the San Joaquin Valley. Packing and handling revenue for these operations
of $8.2 million was offset by $6.4 million of expenses largely related to
labor costs and to the fixed infrastructure costs associated with the
Company's four packing facilities. Year-to-date net income from packing
operations is lower than the three months ended June 30, 1997 as the
packing operations reflected a loss due to the lower volume of packed or
handled product in the first quarter. As all of the Company's packing
operations are conducted through Sun World, no such operations were
conducted by the Company during the 1996 period.
MARKETING OPERATIONS. During the six months ended June 30 1997, a
total of 4.3 million units were sold consisting primarily of Company-grown
table grapes, sweet red and yellow peppers and seedless watermelon from
the Coachella Valley; table grapes, seedless watermelon and citrus from
domestic third party growers; Chilean table grapes; and Company-grown
table grapes and tree fruit from the San Joaquin Valley. These unit sales
resulted in marketing revenue of $3.4 million. Marketing expenses totaled
$2.0 million for the six months ended June 30, 1997 resulting in a net
income from marketing operations of $1.4 million. As all of the Company's
marketing operations are conducted through Sun World, no such operations
were conducted by the Company during the 1996 period.
PROPRIETARY PRODUCT DEVELOPMENT. During the six months ended June 30
1997, net income from proprietary product development was $0.5 million
consisting of the Company's share of partnership income totaling $0.6
million offset by $0.1 million in research and development expenses. As
proprietary product development is conducted solely through Sun World, no
such activity was conducted by the Company during the 1996 period.
LANDFILL PREVENTION ACTIVITIES. During the six months ended June 30
1997, expenses incurred in connection with activities in opposition to the
landfill project, such as litigation costs and professional fees and
expenses totaled $0.4 million as compared to $1.4 million during the 1996
period.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses, consisting primarily of corporate operating expenses,
professional fees and salaries, increased by $4.1 million during the six
months ended June 30 1997 as compared to the 1996 period primarily due to
the addition of Sun World administrative costs for the six months ended
June 30, 1997 of $4.2 million.
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization
expense for the six months ended June 30, 1997 totaled $2.3 million
compared to $0.5 million for the same period in 1996. The increase is
attributable to depreciation relating to the acquired Sun World assets.
INTEREST EXPENSE. Net interest expense totaled $7.8 million during
the six months ended June 30 1997, compared to $0.9 million during the
same period in 1996. The following table summarizes the components of net
interest expense for the two periods (in thousands):
Six Months Ended
June 30,
1997 1996
------ ------
Interest on outstanding debt - Sun World $6,803 $ -0-
Interest on outstanding debt - Cadiz 479 540
Amortization of financing costs 965 448
Interest income $ (461) (96)
------ ------
$7,786 $ 892
====== =======
The increase in interest on outstanding debt during the 1997 period is
attributable to the long-term debt acquired as part of the Sun World
acquisition. Financing costs, which include legal fees and extension
fees, are amortized over the life of the debt agreement.
NINE MONTHS ENDED DECEMBER 31, 1996 COMPARED TO FISCAL YEAR ENDED MARCH
- ------------------------------------------------------------------------
31, 1996
- ----------
During the nine months ended December 31, 1996, Cadiz incurred a net
loss of $6.0 million compared to a loss of $8.5 million during the fiscal
year ended March 31, 1996. The following table summarizes the net loss
for both periods (dollars in thousands):
Nine Months Fiscal Year
Ended Ended
December 31, March 31,
1996 1996
------ ------
Revenues $ 23,780 $ 1,441
--------- -------
Costs and expenses:
Cost of sales 17,725 1,649
Resource development 1,133 1,680
Landfill prevention activities 394 1,919
General and administrative 4,924 1,826
Depreciation 864 833
Amortization 175 234
Interest expense, net 5,203 1,787
Income tax benefit (641) -0-
---------- ---------
Net loss $ (5,997) $ (8,487)
========= ========
The operations of Sun World for the period September 14 through December
31, 1996 are included above; however, due to the seasonality of the
operations of Sun World, this is not indicative of the results of
operations should a full fiscal year of activity be included.
REVENUES. During the nine months ended December 31, 1996, Cadiz
recorded revenues of $23.8 million, of which $22.5 million resulted from
Sun World operations, all of which were recognized from September 14, 1996
(the date subsequent to the Sun World Acquisition) through December 31,
1996. The balance of Cadiz' revenues were recognized from the development
activities of Cadiz, consisting primarily of gross crop proceeds from the
Cadiz ranch.
COST OF SALES. Cost of sales for the nine months ended December 31,
1996 of $17.7 million consisted of all direct costs and an allocation of
indirect costs related to revenue generated by Cadiz, $16.4 million of
which related to Sun World activities, for the period September 14, 1996
through December 31, 1996, as compared to $1.7 million for Cadiz during
the fiscal year ended March 31, 1996.
RESOURCE DEVELOPMENT. Expenses recorded in this category consist of
costs incurred in the land and water resource development of Cadiz'
landholdings. These costs include the operating costs associated with Sun
World's continual evaluation of additional potential land acquisition
sites, such as overhead, legal and travel, as well as the costs associated
with the development and transfer of surplus water from Cadiz and Piute
properties. See "Business--Narrative Description of Business". In
relation to the Cadiz water transfer project, Cadiz expects completion of
the required EIS/EIR process within 18 months and completion of the
necessary delivery systems within several months thereafter, although no
assurances can be made.
Resource development expenses, which consist of costs incurred in the
land and water development of Cadiz' landholdings, totaled $1.1 million
for the nine months ended December 31, 1996 as compared to $1.7 million
for the fiscal year ending March 31, 1996. The difference is primarily
attributable to the difference in the length of the periods reported (nine
months versus twelve months).
LANDFILL PREVENTION ACTIVITIES. Cadiz is engaged in opposition to the
proposed construction and operation of a landfill proposed to be located
adjacent to its Cadiz Valley property, and has filed a lawsuit seeking,
among other things, to set aside regulatory approvals for the landfill
project. See "Risk Factors--Risks Associated with Business of Cadiz--
Potential Adverse Effect of Rail-Cycle Project on Cadiz" and "Legal
Proceedings." During the nine months ended December 31, 1996, expenses
incurred in connection with activities in opposition to the project, such
as litigation costs and professional fees and expenses totaled $0.4
million as compared to $1.9 million during the fiscal year ending March
31, 1996. The decrease is due to the fact that the lawsuit is in the
discovery phase; however, management believes expenses in the future will
increase since Cadiz plans to vigorously oppose the proposed project.
GENERAL AND ADMINISTRATIVE. General and administrative expenses during
both the nine months ended December 31, 1996 and the fiscal year ended
March 31, 1996 consisted primarily of corporate operating expenses,
professional fees and salaries. These expenses increased by $3.1 million
during the nine months ended December 31, 1996 as compared to the fiscal
year ending March 31, 1996 primarily as a result of the Sun World
Acquisition and the addition of corporate and administrative costs related
to Sun World in the amount of $2.5 million for the period September 14,
1996 through December 31, 1996. During the period ended December 31,
1996, Cadiz was awarded and received approximately $0.4 million as final
payment toward full reimbursement of its legal fees and costs incurred in
defending a legal action which was netted against the related legal fees
incurred.
DEPRECIATION. Depreciation totaled $0.9 million for the nine months
ended December 31, 1996 as compared to $0.8 million for the fiscal year
ended March 31, 1996. The increase is primarily attributable to
depreciation for the three and one half month period from September 14,
1996 to December 31, 1996 related to the assets of Sun World which were
acquired.
INTEREST EXPENSE. Net interest expense totaled $5.2 million during the
nine months ended December 31, 1996 as compared to $1.8 million during the
fiscal year ended March 31, 1996. The following table summarizes the
components of net interest expense for the nine months ended December 31,
1996 and the fiscal year ended March 31, 1996 (dollars in thousands):
Nine Months Fiscal Year
Ended Ended
December 31, March 31,
1996 1996
----- -----
Interest expense on outstanding debt $ 5,193 $ 1,000
Amortization of financing costs 746 841
Interest income (736) (54)
------- -------
$ 5,203 $ 1,787
======== =======
The increase in interest expense on outstanding debt during the
period ended December 31, 1996 is attributable to the long-term debt
acquired as part of the Sun World Acquisition. Interest income increased
due to the average Sun World cash balance of over $30 million maintained
during the fourth calendar quarter of 1996.
INCOME TAX BENEFIT. An income tax benefit of $0.6 million arose
during the nine months ended December 31, 1996 as a result of utilization
of net operating loss carryforwards.
YEAR ENDED MARCH 31, 1996 COMPARED TO YEAR ENDED MARCH 31, 1995
During the year ended March 31, 1996, Cadiz incurred a net loss of
$8.5 million as compared to a net loss of $4.6 million during the previous
year. The following table summarizes the net loss for both periods (in
thousands):
March 31, March 31,
1996 1995
------- ------
Revenues $ 1,441 $ 543
------- -------
Costs and expenses:
Cost of sales 1,649 506
Resource development 1,680 1,039
Landfill prevention activities 1,919 -0-
General and administrative 1,826 1,525
Depreciation 833 737
Amortization 234 234
Interest expense, net 1,787 1,208
Gain on debt settlement -0- (115)
------- -------
Net Loss $ 8,487 $4,591
======= =======
REVENUES. Revenues were recognized from Cadiz' resource development
as a result of its entering into joint venture or leasing arrangements
with third party growers for the farming of crops on its properties. A
combination of gross crop proceeds from the citrus orchard and both rent
and percentage of gross crop proceeds from the vineyard totaled $0.6
million and $0.5 million for the years ended March 31, 1996 and 1995,
respectively. Gross crop proceeds from the additional acreage developed
to row crops in the latter part of fiscal year 1995 totaled $0.8 million
for the year ended March 31, 1996, primarily from the harvest of honeydew
melons and seedless watermelon. Revenue from the produce brokerage
operation which commenced in May 1995 totaled $82,000 during the 1996
fiscal year.
COST OF SALES. Cost of sales increased by $1.1 million during the
year ended March 31, 1996 from the prior year primarily due to Cadiz'
share of joint venture production costs associated with the development of
an additional 240 acres to row crops at the beginning of the 1996 fiscal
year.
RESOURCE DEVELOPMENT. Resource development expenses totaled $1.7
million for the year ended March 31, 1996 as compared to $1.0 million for
the year ended March 31, 1995. As activities were taking place on
multiple water projects during the 1996 fiscal year, costs associated with
development increased as compared to the prior year when Cadiz was
involved in only the Cadiz water transfer project. In addition, Cadiz
developed an additional 240 acres to row crops at the beginning of the
1996 fiscal year whereby Cadiz was able to attract third party growers.
Cadiz incurred an increase in costs associated with management of the
Cadiz ranch with respect to this additional acreage. Also included in
resource development are costs associated with evaluation of the potential
acquisition of additional sites.
LANDFILL PREVENTION ACTIVITIES. During the year ended March 31,
1996, expenses incurred in connection with activities in opposition to the
Rail-Cycle project totaled $1.9 million, including litigation costs,
professional fees and expenses, and contributions in support of a local
coalition which actively opposed the Rail-Cycle Project.
GENERAL AND ADMINISTRATIVE. General and administrative expenses
during both periods consisted primarily of corporate operating expenses,
professional fees and salaries. These expenses increased by $0.3 million
during the year ended March 31, 1996 as compared to the prior year.
During the 1996 fiscal year Cadiz was engaged in, among other things,
the Sun World Acquisition; negotiations and/or discussions with
prospective purchasers regarding several of Cadiz' water transfer
projects; management of Cadiz' permanent crops; and production of
additional acreage to row crops in its farming operation. In the prior
year, by contrast, activities pertained to evaluation of only one water
transfer project and management of Cadiz' permanent crops. As a result of
this increased level of activity, Cadiz has incurred a corresponding
increase in costs related to overhead, professional fees, salaries and
travel, among others.
DEPRECIATION. Depreciation totaled $0.8 million for the year ended
March 31, 1996 as compared to $0.7 million for the prior year. The
increase of $96,000 was primarily due to a full year of depreciation on
infrastructure improvements at the Cadiz property, including the
development of additional irrigation wells which were completed during the
fourth quarter of fiscal 1995.
INTEREST EXPENSE. Net interest expense totaled $1.8 million during
the year ended March 31, 1996 as compared to $1.2 million during the same
period in 1995. The following table summarizes the components of net
interest expense for the years ended March 31, 1996 and 1995 (in
thousands):
March 31, March 31,
1996 1995
------- -------
Interest expense on outstanding debt $ 1,000 $ 842
Amortization of financing costs 841 479
Interest income (54) (113)
------- --------
Net interest expense $ 1,787 $ 1,208
======= ========
Interest expense on outstanding debt increased during the year as a
result of an increased level of borrowing and due to slightly higher
interest rates. Amortization of financing costs increased as a result
of debt issue costs incurred in connection with Cadiz' March 1995 loan
facility. Such costs are amortized over the life of the debt
arrangement, which matures on January 31, 1997.
GAIN ON DEBT SETTLEMENT. In June 1994, Cadiz retired a note
payable in the amount of $0.3 million to an individual at a discounted
amount resulting in an extraordinary gain on settlement of debt of $0.1
million. The note, which originated in 1985, was scheduled to be
retired with a balloon payment in December 1996.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL DISCUSSION OF LIQUIDITY AND CAPITAL RESOURCES. With the
acquisition of Sun World, and the completion of an offering by Sun World
of $115.0 million in secured notes and a $30.0 million Revolving Credit
Agreement, as further discussed below, Cadiz believes it will be able to
meet its working capital needs without looking to additional outside
funding sources, although no assurances can be made. See "Current
Financing Arrangements" and "Equity Placements," below. Prior to its
acquisition of Sun World, Cadiz had looked to outside funding sources to
address its liquidity and working capital needs.
On April 16, 1997, Sun World completed a private placement of
$115.0 million of Old Notes. The Old Notes were sold through Smith
Barney Inc. as initial purchaser to "qualified institutional buyers" (as
defined in Rule 144A under the Securities Act) and a limited number of
institutional "accredited investors" (as defined in the Securities Act).
The proceeds from the issuance of the Old Notes, when combined with Sun
World's existing cash and cash made available under a $30.0 million
Revolving Credit Agreement entered into by Sun World concurrently with
the issuance of the Old Notes, were used to retire Sun World's existing
indebtedness to John Hancock Mutual Life Insurance Company ("John
Hancock") and Caisse Nationale de Credit Agricole, acting through its
Grand Cayman branch ("Credit Agricole"), as well as Cadiz' existing
indebtedness to Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A.
("Rabobank") (referred to hereinafter as the "Debt Refinancing").
Management believes that the terms of Sun World's debt facilities
following the issuance of the Old Notes are more favorable to Sun World
than the terms of the retired debt facilities. See "Outlook," below.
The terms of the Exchange Notes offered hereby are nearly identical to
the terms of the Old Notes.
Under Sun World's historical working capital cycle, working capital
is required primarily to finance the costs of growing and harvesting
crops, which occurs from January through September with a peak need in
June. Sun World harvests and sells the majority of its crops during the
period from June through October, when it receives the majority of its
revenues. In order to bridge the gap between incurrence of expenditures
and receipt of revenues, large cash outlays are required each year.
Prior to its Debt Refinancing, Sun World's cash balance was sufficient
to provide for these seasonal working capital requirements without the
need for additional outside funding. However, a substantial portion of
Sun World's cash on hand was used upon issuance of the Notes to fund
debt repayments. Therefore, Sun World has depended upon the Revolving
Credit Agreement to meet its seasonal working capital needs in 1997. As
of June 30, 1997, Sun World had an outstanding balance of approximately
$16.9 million under the Revolving Credit Agreement which will be
continually reduced during the balance of the 1997 growing season as
seasonal revenues are received. See "Risk Factors-- Seasonality" and
"Risk Factors--Risks Associated with Business of Cadiz--Significant
Leverage and Working Capital Requirements."
CURRENT FINANCING ARRANGEMENTS.
SUN WORLD OBLIGATIONS
The Old Notes, which were issued in the principal amount of $115.0
million on April 16, 1997 and will mature on April 15, 2004, accrue
interest at the rate of 11-1/4% per annum. Interest only is payable
semi-annually on April 15 and October 15 of each year, commencing
October 15, 1997. The Old Notes are secured by a first lien on
substantially all of the assets of Sun World and its subsidiaries, other
than growing crops, crop inventories and accounts receivable and
proceeds thereof, which secure the Revolving Credit Agreement. The Old
Notes are also secured by the guarantee of Cadiz and the pledge by Cadiz
of all of the stock of Sun World. See "Risk Factors--Risks Associated
with Business of Cadiz--Significant Leverage and Working Capital
Requirements" and "Risk Factors--Risks Associated with Business of
Cadiz--Limitations on Access to Sun World Cash Flow and Dividends."
Sun World entered into a one year $30.0 million Revolving Credit
Agreement which is guaranteed by Cadiz. Amounts borrowed under the
Revolving Credit Agreement will accrue interest at either prime plus
1.50% or LIBOR plus 2.50%, at Sun World's election, with an additional
.50% payable for advances on eligible inventory above specified levels.
As of June 30, 1997, approximately $16.9 million was outstanding under
the Revolving Credit Agreement.
CADIZ OBLIGATIONS
As Cadiz has not received significant revenues from its water
resource activity to date, Cadiz has been required to obtain financing
to bridge the gap between the time water resource development expenses
are incurred and the time that revenue will commence. Historically,
Cadiz has addressed these needs primarily through secured debt financing
arrangements with its lenders, private equity placements and the
exercise of outstanding stock options.
Cadiz' primary current lender is ING Baring (U.S.) Capital
Corporation ("ING"). On March 31, 1997, ING purchased Cadiz' previously
outstanding obligations to Henry Ansbacher & Co., Ltd. ("Ansbacher") of
approximately $9.7 million. Concurrently with such purchase, the
maturity date of the ING obligations was extended to April 30, 1998
(with the interest rate of such obligations to be adjusted as of May 1,
1997 to LIBOR plus 200 basis points, payable at LIBOR only semi-annually,
with the remaining accrued interest added to principal), and
Cadiz issued to ING Warrants to purchase 75,000 shares of Cadiz Common
Stock, exercisable for five years beginning on April 30, 1997 at an
exercise price equal to the average daily closing price of Sun World's
Common Stock over a ten trading day period ending on April 29, 1997.
ING has also granted to Cadiz the right to obtain two additional one-year
extensions. Upon exercise of the first and second extension, Cadiz
would be required to issue certain additional warrants to ING and the
interest rate would be further adjusted. Currently, ING holds a senior
deed of trust on substantially all of Cadiz' non-Sun World related
property.
As Cadiz continues to aggressively pursue its business strategy,
additional financing specifically in connection with Cadiz' water
projects will be required. The nature of such additional financing for
the water transfer and/or storage projects will depend upon how the
development and ownership of each project is ultimately structured, and
how much of each project's funding will be Cadiz' responsibility.
Should Cadiz determine that it will be able to maximize its profit
potential through construction and ownership of the water delivery
and/or storage systems used in the project, Cadiz will be required to
obtain long-term project financing. Based upon the results of analysis
performed by an investment banking firm retained by Cadiz, management
believes that several alternative long-term financing arrangements are
available to Cadiz which will be further evaluated once funding
responsibility and ownership alternatives are determined.
EQUITY PLACEMENTS. During the nine months ended December 31, 1996,
Cadiz utilized equity placements to fund its Sun World Acquisition. The
total cash requirements of Cadiz related to the Sun World Acquisition
were funded from: (i) the issuance by Cadiz of $27.6 million of newly
authorized Series A Preferred Stock ("Series A Preferred"); (ii) the
issuance by Cadiz of $7.6 million of newly authorized Series B Preferred
Stock ("Series B Preferred"); (iii) the issuance by Cadiz of $2.6
million of newly authorized Series C Preferred Stock ("Series C
Preferred"); and (iv) $1 million previously deposited by Cadiz from its
working capital in trust with the Official Committee Holding Unsecured
Claims in the Sun World bankruptcy case. Of such funds, approximately
$35 million was applied to cash disbursements required at closing under
the Sun World Plan of Reorganization, including the $15 million capital
contribution and approximately $5.5 million of principal reduction to
secured lenders. The remainder has been utilized by Cadiz substantially
for the payment of expenses relating to the Sun World Acquisition, as
well as for the capital and operating requirements of Cadiz.
Under the terms of the Plan of Reorganization in the Cadiz
bankruptcy case, as originally approved, the total cash requirements of
Cadiz in order to close the Cadiz Acquisition would have been
approximately $39 million, with $15 million of this amount to be
deposited by Cadiz at closing into the trusteed unsecured claims reserve
account. However, in order to protect against stockholder dilution,
shortly before completion of the Cadiz Acquisition Cadiz was able to
successfully negotiate a reduction in this required initial cash deposit
to $11 million, thereby effectively reducing cash requirements at
closing to $35 million. As a condition to this reduction in the amount
of the initial deposit, Cadiz agreed to deposit an additional amount
into the unsecured claims reserve account subsequent to the closing,
when the final claims amounts could more readily be determined. In
order to fund the remaining amounts necessary to complete its
requirements in this regard, on November 26, 1996, Cadiz issued 240
shares of its Series B Preferred and 40 shares of its Series C Preferred
for total aggregate consideration of $2.8 million, or $10,000 per share.
The amount of shares so issued by Cadiz was less than the additional
amount which Cadiz would otherwise have needed to issue prior to the
Cadiz Acquisition if the amount of the initial cash deposit had not been
reduced.
During the nine months ended December 31, 1996, Cadiz received
gross proceeds of $942,000 through the exercise of previously
outstanding stock options.
The Series A Preferred was not convertible when issued, but became
convertible into shares of Common Stock at the option of the holder, on
November 12, 1996 upon the filing by Cadiz of an Amendment to its
Certificate of Incorporation ("Amendment") increasing Cadiz' authorized
Common Stock from 24,000,000 to 45,000,000 shares, thereby allowing
Cadiz to reserve sufficient shares of Common Stock for issuance upon
conversion. Concurrently with the filing of the Amendment, the
conversion price ("Series A Conversion Price") was $3.75. Holders are
entitled to cumulative dividends payable semi-annually in cash or Common
Stock at a rate of 6% per annum. The Series A Preferred is also
mandatorily convertible in full at the option of Cadiz at any time prior
to six months following the filing of the Amendment at the Series A
Conversion Price provided that, as a condition to such conversion, Cadiz
shall pay to holders one full year's worth of dividends (less the amount
of any dividends theretofore paid). Cadiz exercised this conversion
right effective May 7, 1997, and no shares of Series A Preferred
currently remain outstanding. The Series A Preferred ranks senior and
prior to Cadiz' Common Stock and on a parity with any other class or
series of Preferred Stock. Except as provided by law, holders are not
entitled to vote upon any matter submitted to a vote of Cadiz'
stockholders.
The Series B and C Preferred were immediately convertible upon
issuance into shares of Common Stock, at the option of the holder, at a
price equal to the lower of (a) $5.8125 per share or (b) 85% of the
average closing bid price over the ten-trading day period ending on the
day prior to the submission of any conversion notice ("Series B/C
Conversion Price"). Holders are entitled to cumulative dividends
payable upon conversion or maturity in cash or Common Stock at a rate of
6% per annum. Cadiz reserves the right to redeem any shares of Series B
or Series C Preferred for $11,765 per share in cash by giving holders
five days notice. Any Series B or Series C Preferred shares outstanding
one year following issuance are mandatorily converted into Common Stock
at the Series B/C Conversion Price. Holders are entitled to a
liquidation preference equal to the initial purchase price of $10,000
per share. As of May 7, 1997, 90 shares of Series B Preferred and no
shares of Series C Preferred remain outstanding. The Series B and C
Preferred rank senior and prior to Cadiz' Common Stock and on a parity
with any other class or series of Preferred Stock. Except as provided
by law, holders are not entitled to vote upon any matter submitted to a
vote of Cadiz' stockholders.
The following table summarizes Cadiz' cash position for the periods
indicated (amounts in thousands):
Six Months Six Months
Ended Ended
June 30, June 30,
1997 1996
------- -------
Net cash used for continuing
operating activities $(19,256) $ (3,718)
Net cash provided by (used for)
investing activities 1,018 (2,276)
Net cash provided by (used for)
financing activities (12,268) 5,938
--------- ---------
Net decrease in cash (30,506) (56)
Cash and cash equivalents,
beginning of period 33,307 2,600
--------- ---------
Cash and cash equivalents,
end of period $ 2,801 $ 2,544
========= ==========
CASH USED FOR OPERATING ACTIVITIES. Cash used for operating activities
totaled $19.3 million for the six months ended June 30, 1997 as compared to
cash used for continuing operating activities of $3.7 million for the same
period in 1996. The increase in cash used for operating activities
primarily resulted from the inclusion of Sun World's operations and seasonal
working capital requirements in the 1997 period. Significant working
capital changes included an increase in accounts receivable of $12.7 million
and an increase in inventories of $11.2 million attributable to the
seasonality of Sun World's agricultural operations offset by an increase in
accounts payable of $12.0 million.
CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES. Cash provided by
investing activities totaled $1.0 million during the six months ended June
30, 1997 as compared to cash used for investing activities of $2.3 million
during the prior year's period. Although the Company invested $2.6 million
in developing crops and $1.5 million in the purchase of land, property,
plant and equipment and in furtherance of its water transfer and storage
projects, the Company received proceeds of $2.8 million from the disposal of
underproducing Sun World assets through an asset disposal program. In
addition, partnership distributions received by Sun World totaled $1.0
million and other assets decreased by $1.3 million.
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES. Cash used for
financing activities totaled $12.3 million for the six months ended June 30,
1997 as compared to cash provided by financing activities of $5.9 million
during the six months ended June 30, 1996. Principal payments on long-term
debt of $140.3 million were made from the proceeds from the issuance of
$115.0 million of debt and from the payment of cash derived from the
Company's existing working capital. Costs related to the debt issuance
totaled approximately $5.2 million. Periodic drawdowns aggregating $35.1
million under the Revolving Credit Agreement, net of periodic repayments
totaling $18.2 million, were used to provide the Company's seasonal working
capital requirements. Net proceeds from the exercise of previously
outstanding stock options totaled $1.3 million during the six months ended
June 30, 1997.
OUTLOOK
With the issuance of the Notes, Cadiz believes that, based upon current
levels of operations and anticipated growth, Sun World can adequately
service its indebtedness and meet its seasonal working capital needs
utilizing available internal cash and the Revolving Credit Agreement.
Although the Indenture and agreements between Cadiz and its principal
current lender restrict the amount of cash that can flow from Sun World to
Cadiz and vice versa, Cadiz expects to be able to meet its ordinary working
capital needs, in the short-term, through a combination of quarterly
management fee payments from Sun World, payments from Sun World under an
agricultural lease whereby Sun World now operates Cadiz' 1,600 acres of
developed agricultural property at Cadiz, California, and the possible
exercise of outstanding stock options. In addition, there are provisions in
the Indenture allowing for certain additional payments to be made from Sun
World to Cadiz, subject to Sun World meeting specific tests and ratios.
As Cadiz is actively pursuing the development of its water resources, it
is seeking the finalization of the regulatory approvals needed to commence
construction of a water delivery and/or storage project at Cadiz. Once the
lengthy regulatory review process is finalized and construction of the
necessary delivery and/or storage system has commenced, Cadiz anticipates
generating a revenue stream within less than a year thereafter which will be
sufficient to meet the then existing operating requirements of Cadiz,
although no assurances can be given. Concurrently with the regulatory
review process, Cadiz is also negotiating the terms of water delivery and/or
storage arrangements with various California water agencies, which include
issues such as financing, pricing concepts and formulas and ownership of the
pipeline and the delivery and/or storage system.
In addition to the development of its water resources, Cadiz is actively
involved in further agricultural development and reinvestment in its
landholdings. Such development will be systematic and in furtherance of
Cadiz' business strategy to provide for maximization of the value of its
assets.
With the issuance of the Notes on April 16, 1997, annual maturities of
long-term debt outstanding are as follows: 1997 - $1,397,000; 1998 -
$10,125,000; 1999 - $386,000; 2000 - $433,000; 2001 - $445,000, and 2002 and
thereafter - $116,602,000. At December 31, 1996, prior to the issuance of
the Notes, annual maturities of long-term debt outstanding excluding
$124,000 representing the unamortized portion of warrants were as follows:
1997 $4,877,000; 1998 $24,253,000; 1999 - $9,374,000; 2000 -
$11,398,000; 2001 - $11,410,000, and 2002 and thereafter - $92,676,000.
Since Cadiz' inception, inflation has not had a material impact either on
the costs of materials required in the development of property and/or in
labor costs. Similarly, the value of Cadiz' real property has not been
materially impacted by inflation. In the event the rate of inflation should
accelerate in the future, Cadiz believes the increase in the value of its
real property will exceed any increases in costs attributable to inflation.
BUSINESS
Sun World is one of the largest vertically integrated agricultural
companies in California with approximately 17,300 acres of owned and
2,100 acres of leased improved land in two of North America's premier
agricultural regions, the Coachella and San Joaquin Valleys of southern and
central California. For the twelve months ended December 31, 1996, Sun
World had revenues of $100.4 million.
Sun World is a leading grower and marketer of table grapes, seedless
watermelons, colored sweet peppers and plums. Sun World also grows and
markets other fruits and vegetables, including peaches, nectarines, apricots
and lemons. Sun World is also one of California's largest independent
marketers of grapefruits, tangerines, mandarin oranges and dates. Sun World
ships approximately 75 varieties of fresh produce to all 50 states and
exports fresh fruits and vegetables to over 30 foreign countries. Sun
World's operations include cultivation, packing and marketing of primarily
permanent and, to a lesser extent, annual (or row) crops. In addition, Sun
World operates a large research and development program that has produced
dozens of proprietary fruit varieties in the last five years. Sun World's
marketing operations include selling, merchandising and promoting Sun World
grown products, as well as providing these services for third party growers.
Produce grown or distributed by Sun World reaches more than 2,000
supermarket retailers, food service entities, warehouse clubs and
international trading companies throughout North America, Europe and Pacific
Rim countries. During 1996, Sun World had 25 different customers who each
accounted for in excess of $1.0 million in sales volume, including national
retailers such as Safeway Stores, American Stores, Supervalu and Kroger, and
club stores including Sam's and PriceCostco. Approximately 10% of Sun
World's products are marketed outside of the United States in Europe,
Australia, Japan, Hong Kong, Singapore, Malaysia and Taiwan. In addition to
product and customer diversification, Sun World's farming operations extend
over 350 miles from central to southern California, providing substantial
geographic diversification that reduces the potential negative impact of
variations in weather, infestations and other natural occurrences
detrimental to a successful harvest.
INDUSTRY OVERVIEW
The United States agricultural industry annually produces more than 400
types of fruits and vegetables with a retail value exceeding $60 billion.
These products are grown, packed and marketed and then travel through one or
more distribution channels including brokers, wholesale jobbers, service
wholesalers, distributors, food service operators and supermarket retailers
before reaching the consumer. Due to the growing cycle of these products,
the supply of fruits and vegetables from a particular region varies
throughout the season producing substantial price fluctuation over
relatively short time periods.
Although these products are seasonal and their prices fluctuate, the
consumer demands fresh produce throughout the year. As a result, retailers
prefer to source from marketers who can supply a consistently high quality
product over a large portion of the year. A grower or marketer who is able
to provide product both early and late in the season gains both a
distribution and a price advantage, which often results in significantly
enhanced profitability. Finally, there is a growing consumer concern
regarding food safety and consequently the environment in which fresh
produce is grown and packed. As a result, retailers are increasingly
choosing to reduce the number of suppliers with whom they contract and to
require these suppliers to track their produce from seed to table. As a
result of these trends, retailers are working more closely with larger, more
established growers and marketers who can provide them with the quality,
timeliness and breadth of products they require.
Most commercial farming operations produce both permanent crops and row
crops. From a commercial perspective there are two important differences
between permanent and row crops: (i) permanent crops require significant
lead time before producing commercially viable yields (e.g. approximately
three years for grapes and five years for stone fruit); and (ii) permanent
crops often last 30 or more years and reach their peak production potential
after 10 years. In the Coachella and San Joaquin Valleys, there has been a
continuing reduction in developed farming properties. A change in the
permanent crop mix in this region would generally require the incurrence of
a several year lag period as new crops reach commercial maturity. These
factors result in a relatively stable permanent crop base over an extended
period of time limiting supply based price volatility. Row crops, on the
other hand, are replanted annually and are subject to wider variations in
supply and consequently, price. As a result, permanent crops tend to
produce a more predictable revenue stream than row crops.
BUSINESS STRATEGY
New management believes that in the past Sun World did not focus on
maximizing profitability and controlling the volatility of its operating
earnings, factors which contributed to Sun World's filing for bankruptcy in
October, 1994. Following the Sun World Acquisition in September 1996,
management implemented the following five-point strategy: (i) producing
more varieties of crops which are available for delivery at peak pricing
windows throughout the year; (ii) expanding third party marketing and
packing businesses to increase Sun World's ability to absorb the primarily
fixed costs of its vertically integrated operations; (iii) improving
administrative efficiency through both headcount reductions and a new
comprehensive management information system; (iv) commercializing Sun
World's extensive proprietary product portfolio consisting of over 600
worldwide patents and trademarks; and (v) selling non-strategic properties
to rapidly reduce leverage. As a result, Sun World is poised to achieve
significant cost savings and to reduce annual revenue volatility, while
continuing to grow its core businesses.
Reducing Earnings Volatility of Farming Operations. Sun World primarily
grows table grapes (35% of 1996 acreage) and stone fruit (plums, peaches,
nectarines and apricots) (26% of 1996 acreage). Subsequent to the Sun World
Acquisition, new management developed a crop plan that provided for the
removal of certain under performing permanent crops and the continued
development of certain proprietary varieties of grapes and stone fruit.
Given Sun World's current crop allocation plan, it is now redeploying
marginally productive acreage to further reduce the volatility of its
earnings. In addition, new management has significantly increased the
efficiency and market focus of Sun World's research and development program,
which continues to be one of the largest fruit breeding programs in the
world. Through this program, Sun World has developed and holds patents on
several key products that are unique in taste, features and growing
characteristics. For example, Sun World's flagship Superior Seedless(TM)
brand grape stays securely on the stem during shipping, thereby eliminating
shrinkage, an attribute important to Sun World's customers. In addition, a
number of Sun World's products are well suited for harvesting during periods
of limited supply, allowing Sun World to sell its products at attractive
price points. Other key specialty products include Black Diamond(TM) plums,
Amber Crest(R) peaches, Honeycot(R) apricots, Star Sweet(R) grapefruits, Sun
World sweet colored peppers and Sun World Seedless(R) watermelons. As a
result of these and other streamlining initiatives, Sun World has reduced
its exposure to the price volatility inherent in undifferentiated products,
extended its leadership position in table grapes and stone fruit and
redeployed unprofitable acreage primarily to proprietary permanent crops.
Consequently, Sun World is better able to manage its cost structure and to
provide its unique products to retailers at strong price points during the
year, enhancing the level and predictability of its earnings.
Expanding Marketing and Packing Businesses. In addition to produce grown
on its own ranches, Sun World provides marketing and packing services for
both domestic and international growers. On average, Sun World handles 12
to 13 million units annually, with an average wholesale value of
approximately $120 million. As a leading, vertically integrated producer,
packer and marketer of fruits and vegetables, Sun World has developed a
strong brand name and reputation for quality and reliability. Going
forward, Sun World intends to build upon this brand equity to expand the
marketing and distribution of both its own and third party products to
provide a full product line throughout the year, further solidifying its
strong wholesaler relationships. To this end, Sun World has developed
distribution relationships with growers in Chile and Mexico to sell
contra-seasonal products (winter fruits and vegetables) in the United States
and is already distributing such products throughout its retail customer
base. In addition to these programs, Sun World has hired an executive to
recruit qualified new growers, who can benefit from Sun World's strong brand
name and distribution relationships. In addition to growing its revenue
base, Sun World has several initiatives intended to increase its operating
efficiency, such as consolidating its Coachella packing operations from four
to two facilities and retrofitting its Kimberlina facility to pack citrus
contra-seasonal to its existing stone fruit packing operation. Sun World's
existing infrastructure is sufficient to support its internal operations
during the peak season but provides available capacity in the off season.
As a result, Sun World's third party sales and marketing as well as
contra-seasonal packing operations have significant opportunities to benefit
from Sun World's existing operating leverage.
IMPROVE ADMINISTRATIVE EFFICIENCY. Since the Sun World Acquisition, new
management has implemented a number of organizational changes to provide
more focused farming and financial management. Several key managers were
hired, including a chief executive officer with extensive agricultural and
distribution experience, a chief financial officer who was previously a
partner with Coopers & Lybrand LLP and a highly experienced senior executive
to focus exclusively on enhancing Sun World's third party marketing and
packing businesses. In addition, Sun World has appointed a new senior vice
president of operations. These individuals, along with Sun World's Senior
Vice President Sales and Senior Vice President Corporate Development and
Marketing form Sun World's senior management team. Sun World closed its
former administrative headquarters and consolidated these operations into
existing space at its main packing facility. During 1996, Sun World reduced
its administrative staff by approximately 13%, largely through the
elimination of unnecessary reporting layers. To support these streamlining
changes, Sun World is implementing a new information management system which
should be operational by the end of 1997. Management believes that these
changes will eliminate $1.3 million in annual overhead costs which would
have resulted in a 16% reduction in sales, general and administrative costs
in 1996. With these organizational changes completed, Sun World is focused
on the strategic advantages of proprietary permanent crops, strong customer
relationships and significant marketing expertise and packing resources.
COMMERCIALIZING PROPRIETARY PRODUCT PORTFOLIO. With over 600 worldwide
patents and trademarks, Sun World has identified select opportunities to
commercialize its proprietary product portfolio without diluting its
strength as the exclusive grower of these products in the United States. In
the last 10 years, Sun World has introduced more than 40 proprietary fruit
varieties. The development of a new product takes many years and sometimes
a decade or more. As a result, Sun World, which annually produces tens of
thousands of new grape and stone fruit seedlings, has a strong leadership
position in the development of innovative products. Currently, Sun World
actively exploits its seedless watermelon, which in 1996 generated a profit
of $1.5 million to Sun World through its 50% ownership interest in American
SunMelon, and is actively exploring various new domestic and international
opportunities to license various grape and stone fruit varieties.
REDUCING LEVERAGE TO LOWER FINANCIAL RISK AND IMPROVE OPERATING
FLEXIBILITY. When new management took over Sun World in September, 1996,
total debt was $151.8 million. From that time to December 31, 1996,
management lowered debt by $16.4 million, or 11%, through improved
operational cash flows and proceeds from the sale of non-essential assets.
Sun World is continuing to strengthen its balance sheet and improve its
operating structure through asset sales. As of December 31, 1996, following
the Sun World Acquisition, Sun World completed land sales for $12.4 million,
at prices at or above their appraised value. Additionally, in 1997, Sun
World has sold one ranch and one packing facility for $2.9 million.
CADIZ
On September 13, 1996, Cadiz acquired Sun World following a bankruptcy
related reorganization. Today, Sun World is a wholly owned subsidiary of
Cadiz. Cadiz is publicly traded on the Nasdaq National Market under the
ticker symbol "CLCI." Cadiz' business strategy is to create a portfolio of
landholdings, water resources and agricultural operations within central and
southern California which possess sizable assured supplies of water. Cadiz'
management believes that, with both the increasing scarcity of water
supplies in California and the increasing demand for water, Sun World's and
Cadiz' access to water will provide it with a competitive advantage both as
a major agricultural concern and as a supplier of water, which will lead to
continued appreciation in the value of Cadiz' water portfolio. The Sun
World Acquisition provides Cadiz with senior water rights throughout the
central and southern valleys of California. Excluding Sun World's
properties, Cadiz' portfolio also includes 39,000 acres of land in eastern
San Bernardino County. The largest property totals approximately
27,400 acres at Cadiz, California, approximately 1,600 acres of which have
been developed for cultivation of citrus orchards, table grape vineyards and
row crops. Sun World adds to Cadiz' portfolio more than 17,300 acres of
prime agricultural land in the San Joaquin and Coachella Valleys, increasing
Cadiz' total landholdings to approximately 56,300 acres.
Pursuant to an Environmental Impact Report and land use approvals by San
Bernardino County, Cadiz is authorized to pump approximately 30,000
acre-feet of groundwater per year for irrigation of its land in Cadiz
Valley. An acre-foot is 326,000 gallons, or enough for approximately two
families for one year. Cadiz currently uses approximately 6,000 acre-feet
per year to irrigate its Cadiz Valley agricultural development and planned
near-term development will likely require no more than 10,000 acre-feet per
year. As a result, Cadiz has the ability to transfer groundwater--surplus
to its present and near-term needs--to public agencies which require
supplemental sources of water. Cadiz intends to develop a water banking and
transfer program which will involve importing water from the Colorado River
Aqueduct to Cadiz Valley property during periods of excess supply. This
imported water and local groundwater, stored in aquifers underlying Cadiz'
landholdings, would be extracted by wells and returned to the aqueduct
during periods of drought or reduced allocations from the Colorado River.
Cadiz is currently involved in discussions with several regional water
agencies regarding pricing formulas, financing, and ownership of the
proposed facilities.
In addition, Cadiz owns 7,300 acres in the Piute Valley of eastern San
Bernardino County, which is also underlain by groundwater of excellent
quality. Additional technical and environmental investigations are
currently underway for a water development project anticipated to transfer
approximately 10,000 to 15,000 acre-feet per year. Exploratory drilling is
scheduled during 1997 to test the potential for groundwater development,
transfer, and underground storage at other properties held by Cadiz in
southeastern California. Groundwater reserves in storage are estimated
at 12 to 22 million acre-feet.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
During its last three fiscal years, Cadiz has operated in one industry
segment: resource development. See Consolidated Financial Statements.
Also, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
NARRATIVE DESCRIPTION OF BUSINESS
Pursuant to its business strategy, Cadiz continually seeks to develop and
manage its portfolio of land, water and agricultural resources for their
highest and best use. The development and management activities of Cadiz
are currently focused on agricultural operations (primarily through its
wholly-owned Sun World subsidiary) and water resource development.
Agricultural development will enable Cadiz to maximize the use of its
landholdings while generating cash flow. Cadiz will continue to pursue
opportunities for the use of its water resources, both for internal
operations and to relieve water shortages in other portions of southern
California.
As a fully integrated producer, packer and marketer of specialty fruits
and vegetables, Sun World strives to maximize the year round productivity of
its significant asset base.
AGRICULTURAL OPERATIONS
Sun World is a vertically integrated agricultural operation which
combines an extensive research and development program, year round sourcing,
farming and packing activities and strong marketing capabilities.
PRODUCT LINE. Sun World ships 75 different varieties of fresh fruits and
vegetables to all 50 states and to more than 30 foreign countries. Sun World
is a leading grower and marketer of table grapes, seedless watermelons,
colored sweet peppers, plums, peaches, nectarines, apricots and lemons. It
is also one of California's largest independent marketers of grapefruit,
tangerines, mandarins, and dates.
The breadth and diversity of the product line helps to minimize the
impact of individual crop earnings fluctuations. In addition, work can be
spread more evenly over the course of a year because the growing cycles vary
from crop to crop allowing Sun World to utilize its human and capital
resources more efficiently than would be the case if Sun World's sales were
limited to only a few products. Further, the breadth and diversity of its
product offering provides Sun World with greater presence and influence with
its grocery and food service customers.
Although many fruits and vegetables are fungible commodities, Sun World
has adopted a strategy of developing or acquiring specialty produce
varieties with unique characteristics which differentiate them from
commodity produce varieties. Most of these varieties are harvested during
favorable marketing windows when available supply from competitors is
limited. These specialty varieties typically command a price premium and
are subject to less price volatility than the commodity varieties. They
also provide Sun World with a dominant position in a number of product
categories. Examples of the branded produce grown and marketed by Sun World
include Sun World sweet colored peppers, Superior Seedless(TM) table grapes,
Black Diamond(TM) plums, Sun World Seedless(R) watermelons, Honeycot(R)
apricots and Amber Crest(R) peaches. These products were obtained through a
combination of internal development and acquisition. Sun World's Research
and Development Center is dedicated to developing additional high value
proprietary varieties. See "- Research and Development."
FARMING OPERATIONS
Sun World's farming operations produce approximately 7 million units of
fruits and vegetables annually. Its principal agricultural lands are
located in the San Joaquin and Coachella Valleys of California. See
"Business Properties."
Sun World properties are primarily dedicated to producing permanent
commercial crops and, to a lesser extent, row crops. Additionally, over
1,300 acres are currently utilized for developing crops (i.e., vines and
trees that have not yet reached commercial maturity).
The primary crop categories and approximate commercial and developing
acres for each are as follows:
As of December 31, 1996
-------------------------------------------------
Percent of Percent of Total
Commercial Commercial Developing Commercial &
Acres Acres Acres Developing Acres
------ -------- -------- ----------------
Table grapes . . . . . . 4,095 35.9% 430 35.3%
Raisin and wine grapes . 2,160 18.9 0 16.9
Plums. . . . . . . . . . 1,625 14.3 400 15.8
Lemons . . . . . . . . . 800 7.0 80 6.9
Peppers. . . . . . . . . 775 6.8 0 6.0
Nectarines . . . . . . . 490 4.3 260 5.9
Watermelons. . . . . . . 650 5.7 0 5.1
Peaches. . . . . . . . . 235 2.1 165 3.1
Apricots . . . . . . . . 73 0.6 62 1.1
Other row crops. . . . . 500 4.4 0 3.9
----- ----- ----- -----
Total. . . . . . . . . . 11,403 100.0% 1,397 100.0%
====== ====== ====== =====
Under an agricultural lease entered into concurrently with the Sun World
Acquisition, Sun World operates approximately 1,600 acres of developed
agricultural property at Cadiz. Sun World believes that it will benefit
from the Cadiz Valley agricultural operations by virtue of its ability to
grow and market Cadiz produce under the Sun World label to Sun World's
worldwide customer base.
PACKING AND MARKETING OPERATIONS
In addition to merchandising its own products, Sun World provides
marketing and packing services to third party growers. For third party
growers, Sun World provides three key benefits: (i) Sun World's brand name,
proprietary products and reputation with wholesalers resulting in a
significant pull through effect; (ii) a full complement of services that
include packing, marketing and sales; and (iii) a dedicated sales force of
23 people covering over 600 customers throughout the world.
Sun World's packing facilities handle approximately 10 million units of
produce annually. These facilities provide harvesting, packing, cooling and
shipping services for its own product production, as well as for other
commercial clients. Sun World owns five facilities, four of which are
located in the Coachella Valley and one of which is located in the San
Joaquin Valley. See "Business Properties."
Sun World's vertically integrated operations enable it to offer the
market a continuous stream of new, specialty products which receive a market
premium coupled with a large basket of other produce staples. As a
significant grower, Sun World is able to manage the quality of its own
product line, and as a significant packer/marketer, Sun World works with
other growers to ensure product quality through packing and distribution.
Sun World's sourcing, both external and internal, is diversified
geographically. Sun World's owned and leased farming operations are located
throughout California from the Coachella Valley in the south to central
California's San Joaquin Valley as well as operations near the coast. Sun
World sources externally produced product from throughout California, from
other areas of the United States, and from international sources. This
geographic diversification reduces the impact that unfavorable weather
conditions and infestations could have on Sun World's packing and marketing
operations. The geographic diversification also provides Sun World with a
longer selling season for many crops since the harvests occur at different
times.
Sun World's customer base includes more than 2,000 supermarket
retailers, food service entities, warehouse clubs, and international trading
companies located in approximately 30 countries. Domestic customers include
national retailers such as Safeway Stores and Albertson's; club stores,
including PriceCostco and Sam's; and food service distributors, including
Sysco and Alliant. Approximately 10% of Sun World's products are marketed
outside of the United States in Europe, Australia, Japan, Hong Kong,
Singapore, Malaysia and Taiwan. Only one national retailer, Safeway Stores
(representing approximately 15% of 1996 gross sales made by Sun World)
accounts for more than 10% of Sun World's consolidated revenues. As is
consistent with industry practice, Sun World does not maintain written
agreements with this or its other significant customers.
RESEARCH AND DEVELOPMENT
Sun World has a long history of product innovation, and its Research and
Development Center maintains a fruit breeding program that has introduced
dozens of proprietary fruit varieties in the last five years. Recent product
successes include the Black Diamond(TM) plum, the Amber Crest(R) peach and
the Honeycot(R) apricot. There are several other promising grape and stone
fruit varieties which are scheduled for commercial planting and production
in the near future.
Sun World utilizes approximately 235 acres for its Research and
Development Center and crop experimentation. The Research and Development
Center facility houses tissue culture rooms, growth rooms, four greenhouses,
and over 200 acres of experimental growing crops. The amounts expended by
Sun World in its research and development activities during the fiscal years
ended December 31, 1994, 1995 and 1996 were $1,127,000, $393,000 and
$416,000, respectively. The December 31, 1996 total consists of $296,000
prior to the Sun World acquisition and $120,000 after the acquisition.
Management expects to maintain at least its 1996 level of expenditures
in the future.
As a result of over 20 years of research and development, Sun World
holds rights to more than 600 patents and trademarks around the world. The
patent registrations exist in most major fruit producing countries and the
trademarks are held in both fruit producing and consuming regions. Sun
World's patents have varying expiration dates occurring within the next
several years through 2017; however, the expiration of any individual patent
will not have a material effect upon Sun World's operations.
WATER RESOURCE DEVELOPMENT
The increasing scarcity of water supplies in California will lead to
increasing dependence on water transfer and storage projects within the
state. Cadiz' portfolio of water resources, located in close proximity to
the major aqueduct systems of central and southern California such as the
State Water Project, the Colorado River Aqueduct, and the Colorado River,
provides Cadiz with the opportunity to participate in a variety of water
banking, exchange and transfer and storage projects in partnership with
regional public water agencies.
Cadiz Water Transfer and Storage Project. Cadiz' 27,400 acres in the
Cadiz and Fenner Valleys of eastern California (the "Cadiz Property") are
underlain by a substantial high quality groundwater basin. This groundwater
is recharged by rain and snowfall within a catchment area of nearly 1,300
square miles. Average annual recharge is estimated by Cadiz to be in the
range of 20,000 to 30,000 acre-feet. See "Properties - The Cadiz Property."
Pursuant to an Environmental Impact Report and land use
approvals by San Bernardino County, Cadiz is authorized to pump
approximately 30,000 acre-feet of groundwater per year for irrigation of its
Cadiz Valley property. An acre-foot is 326,000 gallons, or enough for
approximately two families for one year. Cadiz currently uses approximately
6,000 acre-feet per year to irrigate its Cadiz Valley agricultural
development and planned near-term development will likely require no more
than 10,000 acre-feet per year. As a result, Cadiz has the ability to
transfer groundwater - surplus to its present and near-term needs - to public
agencies which require supplemental sources of water.
The Cadiz Water Transfer and Storage Project will require further
regulatory approval, the exact nature of which will depend upon the specific
water agencies with which Cadiz contracts and the ultimate technical
requirements of the Project. Cadiz began technical and environmental
investigations in 1994, and is pleased with the progress made to date.
Cadiz is in discussions regarding transfer and storage agreements with
several public water agencies. These agreements, when complete, will
determine pricing formulas, financing and ownership of the facilities
constructed to deliver and store the water.
PIUTE AND OTHER TRANSFER AND STORAGE PROJECTS. Cadiz has also commenced
water development operations at its 7,300 acre Piute property, which is
located in eastern San Bernardino County approximately 15 miles from the
resort community of Laughlin, Nevada and about 12 miles from the Colorado
River town of Needles, California. This landholding is underlain by
groundwater of excellent quality. Cadiz estimates that average annual
recharge is in the range of 10,000 to 20,000 acre-feet. See "Properties -
The Piute Property."
Additional technical and environmental investigations are currently
underway for a water development project (the "Piute Project") anticipated
to transfer approximately 10,000 to 15,000 acre-feet per year. Cadiz is
currently undertaking discussions with prospective purchasers of water
from the Piute Project, although no formal agreements have been executed.
Exploratory drilling is scheduled during 1997 to test the potential for
groundwater development, transfer, and underground storage at other
properties held by Cadiz in southeastern California.
SUN WORLD WATER RESOURCES. The Sun World Acquisition brought to Cadiz
valuable water rights in various parts of central and southern California.
Cadiz believes with increasing water shortages in California, land with
prime water rights will increase substantially in value.
As irrigation technology continues to improve, Sun World's water
resources may be in excess of actual demands. Such excess supplies may be
available for further agricultural development, or for possible water
transfers, exchanges or banking.
Sun World's landholdings and associated water resources are located
adjacent to the major aqueduct systems of central and southern California,
and in close proximity to the Colorado River. These holdings complement
Cadiz' other groundwater resources, and will enhance Cadiz' opportunities to
participate in a broad variety of water transfer, storage exchange or
banking projects.
SEASONALITY
Sun World's agricultural operations are impacted by the general seasonal
trends that are characteristic of the agricultural industry. Sun World has
historically received the majority of its net income during the second and
third calendar quarters following the harvest and sale of its table grape
and tree fruit crops. Due to this concentrated activity, Sun World has,
therefore, historically incurred a loss with respect to its agricultural
operations in the first and fourth calendar quarters. See "Risk Factors -
Seasonality" and "Risk Factors--Risks Associated with Business of Cadiz--
Significant Leverage and Working Capital Requirements."
In connection with the water resource development activities of Cadiz,
revenues are not expected to be seasonal in nature. Cadiz does not expect
that contracts entered into for the transfer or storage of water will
provide for revenue payments varying significantly from season to season.
COMPETITION
The agricultural business is highly competitive. Sun World's
competitors include a limited number of large international food companies,
as well as a large number of smaller independent growers and grower
cooperatives. No single competitor has a dominant market share in this
industry due to the regionalized nature of these businesses. Sun World
utilizes brand recognition, product quality, harvesting in favorable product
windows, effective customer service and consumer marketing programs to
enhance its position within the highly competitive fresh food industry.
Consumer and institutional recognition of the Sun World trademark and
related brands and the association of these brands with high quality food
products contribute significantly to Sun World's ability to compete in the
market for fresh fruit and vegetables.
Sun World faces competition for the acquisition, development and sale of
its properties from a number of competitors, some of which have
significantly greater resources than Cadiz. Cadiz may also face competition
in the development of water resources associated with its properties. Since
California has scarce water resources and an increasing demand for available
water, Cadiz believes that price and reliability of delivery are the
principal competitive factors affecting transfers of water in California.
EMPLOYEES
As of December 31, 1996, Sun World and Cadiz employed a total of 985
full-time employees. Sun World from time to time engages various part time
and seasonal employees, with a seasonal high of approximately 2,500 part
time employees. Approximately 119 of Sun World's employees are represented
by a labor union pursuant to a contract that expires in 1999. Generally,
Sun World and Cadiz believe that its employee relations are good.
REGULATION
Certain areas of Sun World's operations are subject to varying degrees
of federal, state and local laws and regulations. Sun World's agricultural
operations are subject to a broad range of evolving environmental laws and
regulations. These laws and regulations include the Clean Air Act, the
Clean Water Act, the Resource Conservation and Recovery Act, the Federal
Insecticide, Fungicide and Rodenticide Act, and the Comprehensive
Environmental Response, Compensation and Liability Act. Compliance with
these foreign and domestic laws and related regulations is an ongoing
process which is not currently expected to have a material effect on Sun
World's capital expenditures, earnings or competitive position.
Environmental concerns are, however, inherent in most major agricultural
operations, including those conducted by Sun World, and there can be no
assurance that the cost of compliance with environmental laws and
regulations in the future will not be material. However, neither Sun World
nor Cadiz expects to incur any material capital expenditures for environmental
control facilities for the remainder of the current fiscal year or the
succeeding fiscal year.
Sun World's food operations are also subject to regulations enforced by,
among others, the U.S. Food and Drug Administration and state, local and
foreign equivalents and to inspection by the U.S. Department of Agriculture
and other federal, state, local and foreign environmental and health
authorities. Among other things, the U.S. Food and Drug Administration
enforces statutory standards regarding the safety of food products,
establishes ingredients and manufacturing procedures for certain foods,
establishes standards of identity for foods and determines the safety of
food substances in the United States. Similar functions are performed by
state, local and foreign governmental entities with respect to food products
produced or distributed in their respective jurisdictions. Further, there
can be no assurances as to the effect of any environmental regulations which
may be adopted in the future. See "Risk Factors-- Environmental Matters"
and "Risk Factors--Regulation."
As Cadiz proceeds with the development of its properties, including
related infrastructure, Cadiz will be required to satisfy various regulatory
authorities that it is in compliance with the laws, regulations and policies
enforced by such authorities. Groundwater development, and the export of
surplus groundwater for sale to single entities such as public water
agencies, are not subject to regulation by existing statutes, other than
general environmental statutes applicable to all development projects.
Although applicable laws, regulations and policies have not had a materially
adverse effect upon the ability of Cadiz to develop its Cadiz or other
properties to date, management cannot predict with certainty what
requirements, if any, may be imposed by regulators upon future development.
In addition, the time and costs associated with obtaining regulatory
approvals for resource development are significant, and there can be no
assurance that Cadiz will receive desired approvals for future development
plans. See "Risk Factors--Risks Associated with Business of Cadiz--
Regulatory Approvals."
PROPERTIES
Cadiz currently leases its executive offices in Santa Monica. Cadiz
also maintains a development office in San Bernardino, California. Sun
World owns its main packing facilities and administrative offices in
Bakersfield, California and owns three packing facilities and leases its
sales offices in Coachella, California. Sun World and each of its
subsidiaries believe that their property and equipment are generally well
maintained, in good operating condition and adequate for their present
needs.
The following is a description of significant properties of Cadiz and
Sun World.
THE CADIZ PROPERTY
In 1984, Cadiz conducted an investigation of the feasibility of the
agricultural development of land located in the Mojave desert near Cadiz,
California, and confirmed the availability of prime quality water in
commercial quantities appropriate for agricultural development. Since 1985,
Cadiz has acquired over 27,000 acres in the Cadiz vicinity.
Cadiz has determined that the groundwater basin which underlies the
Cadiz property contains more water than is needed for both the present and
projected agricultural development requirements of the property. Cadiz
therefore intends to develop a water banking and transfer program in
connection with this property. See "Business--Narrative Description of
Business-- Water Resource Development."
In November 1993, the San Bernardino County Board of Supervisors
unanimously approved a General Plan Amendment establishing an agricultural
land use designation for 9,600 acres at Cadiz for which 1,600 acres have
been developed and are leased to Sun World. This Board action represented
the largest land use approval on behalf of a single property holder in the
County's known history. This action also approved permits to construct
infrastructure and facilities to house as many as 1,150 seasonal workers and
170 permanent residents (employees and their families) and allows for the
withdrawal of more than 1,000,000 acre-feet of groundwater from Cadiz'
underground water basin.
Substantially all Cadiz acreage is held in fee directly by Cadiz.
SUN WORLD PROPERTIES
FARM PROPERTIES. Sun World owns approximately 17,300 acres and leases
approximately 2,100 acres of improved land in central and southern
California. The majority of this land is used for the cultivation of
permanent and annual crops and support activities, including packing
facilities.
Sun World owned farming property is divided between five distinct
geographic regions: Madera, Bakersfield and Arvin (located within the San
Joaquin Valley), Coachella (located in the state's southeastern corner near
Palm Springs) and Blythe (located approximately 100 miles east of the
Coachella Valley adjoining the Colorado River).
PACKING AND HANDLING FACILITIES. Sun World owns four packing and
handling facilities, three of which are located in the Coachella Valley and
one of which is located in the San Joaquin Valley at Kimberlina, near
Bakersfield.
The Kimberlina facility, located on an 83 acre parcel owned by Sun
World, consists of 95,000 square feet of cold storage areas and 50,000
square feet for tree fruit packing (including two highly automated tree
fruit production lines). An additional 14,300 square feet is devoted to
office space.
Sun World's primary Coachella Valley facility consists of two
independent buildings located on 22 acres of industrial commercial zoned
land in Coachella, California, two miles south of Indio. The 22 acres
consists of 5 acres of buildings and improvements, 6 acres of packing, and
11 acres of open land. One building is used primarily for the packing of
citrus, for receiving table grapes, for cold storage and for office space.
The other building is used primarily for receiving, cooling and storing
table grapes.
Sun World's other operating facility in Coachella consists of one
building on 4 acres of land and is used primarily for packing watermelons
and citrus and for storage. Currently, the third Coachella facility is not
being used for operations and is held for sale.
All of the Sun World properties are subject to encumbrances for the
benefit of the holders of the Notes. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources - Current Financing Arrangements."
THE PIUTE PROPERTY
The Piute property consists of approximately 7,300 acres and is located
approximately 60 miles east of Cadiz and approximately 15 miles west of the
Colorado River and Laughlin, Nevada, a small, fast growing town with hotels,
casinos and water recreation facilities. The Piute property was identified
for acquisition by Cadiz by a combination of the satellite imaging and
geological techniques which were used by Cadiz to identify water at Cadiz.
The Piute acreage adjoins Highway 95, which is a direct route to Las
Vegas, approximately 60 miles north. The Santa Fe Railroad passes through
the land and Interstate 40 is approximately 12 miles to the south. The
property is held by Cadiz in fee title as to approximately 3,600 acres, with
the remaining acreage under option.
Cadiz has commenced the development of the water resources of this
property.
OTHER PROPERTIES
In addition to the Cadiz and Piute properties, Cadiz owns approximately
4,200 additional acres in the Mojave Desert as to which development has not
yet commenced. Cadiz will continue to seek to acquire additional properties
both in southern California desert regions and elsewhere which are believed
to be suitable for development.
All of Cadiz' non-Sun World fee property is subject to encumbrances in
favor of its current primary lender as security for a loan with an
outstanding balance of approximately $9.7 million as of March 31, 1997. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources--Current Financing
Arrangements."
LEGAL PROCEEDINGS
In November 1995, the San Bernardino County Board of Supervisors
certified an Environmental Impact Report/Environmental Impact Statement
("EIR/EIS"), and approved a Conditional Use Permit for the proposed
construction and operation of a substantial landfill on the shore of Bristol
Lake near Amboy, California (the "Rail-Cycle" Project). The general partner
of Rail-Cycle is controlled by WMX Technologies, Inc. (formerly Waste
Management, Inc.). The Rail-Cycle Project would be located within a few
miles of land owned by Cadiz at Cadiz, California, which the County of San
Bernardino has designated for agricultural use in its General Plan.
Cadiz has vigorously opposed the Rail-Cycle Project on a number of
grounds. In December 1995, an action styled Cadiz Land Company, Inc. vs.
County of San Bernardino, et al. Case No. BCV 02341 was filed by Cadiz in
Superior Court in San Bernardino County. The action challenges the various
decisions by the County of San Bernardino relative to the Rail-Cycle
Project. Named in this action, in addition to the County of San Bernardino,
were the Board of Supervisors of the County of San Bernardino, three
individual members of the Board of Supervisors, an employee of the County,
and Rail-Cycle. On February 1, 1996, Rail-Cycle and the County removed the
case to Federal District Court for the Central District of California (Case
No. CV-96-740-JGD [BQRS]). However, the case has subsequently been remanded
back to the San Bernardino Superior Court. Cadiz alleges that the actions
of the County of San Bernardino did not comply with the guidelines
prescribed by the California Environmental Quality Act and violated state
planning and zoning laws. The action seeks to set aside the county
certification of the EIR/EIS and approval of the proposed Rail-Cycle
Project. Cadiz continues to believe the proposed Rail-Cycle Project, if
constructed and operated as currently designed, poses environmental risks
both to Cadiz' agricultural operations at Cadiz and to the groundwater basin
underlying the Cadiz property. Accordingly, Cadiz intends to pursue a claim
for damages against the County of San Bernardino and Rail-Cycle and the
action seeks compensatory damages in excess of $75 million. The action is
currently in the discovery phase. A hearing on Cadiz' land use and
regulatory claims was held in late July with a ruling anticipated to be
issued within approximately 90 days thereafter. A trial on the issue of
Cadiz' monetary damages will be scheduled at a later date. Cadiz intends to
continue vigorously prosecuting its claims. Should Cadiz fail to prevail in
this litigation, and should the Rail-Cycle Project thereafter be constructed
and operated as proposed without the payment of adequate compensatory damages
to Cadiz, Cadiz believes that the Project will have a materially adverse
impact upon Cadiz' business. See "Risk Factors--Risks Associated with
Business of Cadiz--Potential Adverse Effect of Rail-Cycle Project on Cadiz."
Sun World and Cadiz each are involved in other legal and administrative
proceedings and claims. In the opinion of management, the ultimate outcome
of each proceeding or all such proceedings combined will not have a material
adverse impact on their financial positions.
MANAGEMENT
Sun World Directors, Executive Officers and Significant Employees
The following sets forth certain biographical information, the
present occupation and business experience for the past five years of
each director, executive officer and significant employee of Sun World:
Name Age Position
-------- ---- ------------
Keith Brackpool 40 Chairman of the Board
Timothy J. Shaheen 37 Chief Executive Officer and Director
Stanley E. Speer 36 Senior Vice President and Chief
Financial Officer
Michael J. Aiton 50 Senior Vice President of Sales
Kevin S. Andrew 42 Senior Vice President of Operations
David O. Marguleas 36 Senior Vice President of
Marketing and Corporate Development
David J. Peterson 44 Senior Vice President of
Agricultural Development
Barton Beek 73 Director
Dwight W. Makins 46 Director
Mitt Parker 47 Director
Susan K. Chapman 44 Secretary
Keith Brackpool is Chairman of the Board of Directors of Sun World.
He is a founder of Cadiz, and has served as a member of Cadiz' Board of
Directors since September 1986, and served as Chairman of the Board from
1989 through December 1991, when he was reappointed as Chief Executive
Officer of Cadiz. From October 1989 until May 1991, Mr. Brackpool was
employed as the President of Albert Fisher, Inc., a wholly-owned
subsidiary of The Albert Fisher Group PLC, a U.K. corporation and was a
director of The Albert Fisher Group PLC until May 31, 1991. Since 1988,
Mr. Brackpool has served as an officer and principal of the general
partner of 1334 Partners, Ltd., a California limited partnership which
holds commercial real estate in Southern California. Mr. Brackpool is a
member of the Compensation Committee of the Board of Directors of Sun
World.
Timothy J. Shaheen was appointed Chief Executive Officer and Director
of Sun World in September 1996. Since that time, Mr. Shaheen has also
served as Chief Executive Officer and Director of each of Sun World's
Subsidiary Guarantors. Mr. Shaheen has seven years of experience in the
produce industry, most recently serving as a senior executive with
Albert Fisher North America. While with Albert Fisher, Mr. Shaheen also
served as Director of its Canadian Produce Operations and as a Director
of Fresh Western Marketing, one of the largest growers/shippers of fresh
vegetables in the Salinas Valley of California. Mr Shaheen has also
served as a past director of the Los Angeles Association of Produce
Wholesalers and Dealers. Prior to his employment with Albert Fisher,
Mr. Shaheen was a senior manager with the accounting firm of Ernst &
Young LLP. Mr. Shaheen is a Certified Public Accountant.
Stanley E. Speer joined Sun World as Senior Vice President, Chief
Financial Officer and Secretary following the completion of the Sun
World acquisition. Since that time, Mr. Speer has also served as Chief
Financial Officer and Secretary of each of Sun World's Subsidiary
Guarantors. On July 15, 1997, Mr. Speer was appointed Chief Financial
Officer of Cadiz and has relinquished his position as Secretary of Sun
World. Mr. Speer has fifteen years of experience in public accounting
with the accounting firm of Coopers & Lybrand LLP. Since 1992,
Mr. Speer has served as a partner in their financial advisory services
group specializing in business reorganizations and mergers and
acquisitions consulting. Mr. Speer is a Certified Public Accountant and
a Certified Insolvency and Reorganization Accountant.
Michael J. Aiton was appointed Senior Vice President of Sales for Sun
World in September 1995. He joined Sun World as Director of Marketing
in 1991 and was promoted to Vice President of Marketing in September
1992 and to Vice President of Sales and Marketing North America in April
1993. Mr. Aiton is a former member of the Produce Marketing
Association's board of directors and was chairman of that organization's
nutrition marketing task force. Additionally, he served as the chairman
of the Always Buy Colorado Promotion Association.
Kevin S. Andrew was appointed Senior Vice President of Operations for
Sun World in September 1996. He directs Sun World's farming and packing
operations. Prior to such time, he managed Superior Farming Company's
grape production. He was employed by Superior Farming Company from 1984
until it was acquired by Sun World. Mr. Andrew is chairman of the board
of the North Kern Water Storage District, a founding member of the South
San Joaquin Grape Growers Association, past chairman of the Wine Grape
Inspection Advisory Committee, a governor-appointed position, and a
member of the executive committee of the Agricultural Energy Consumers
Association.
David O. Marguleas was appointed Senior Vice President of Marketing
and Corporate Development for Sun World in November 1994. He is
responsible for all corporate communications and marketing activities as
well as Sun World's research and development program, proprietary
product portfolio and American SunMelon partnership. Previously he
served as Senior Vice President of Marketing, Vice President of
Merchandising and Marketing Services and from 1986 to 1990 was Manager
of Merchandising and Corporate Relations. He was instrumental in
launching several proprietary products for Sun World, including the Le
Rouge Royale(R) sweet red pepper, Le Jaune Royale(R) sweet yellow
pepper, Sun World Seedless(R) watermelon and DiVine Ripe(R) tomato. He
chairs the management committee of American SunMelon, an Oklahoma-based
joint venture responsible for seedless watermelon varietal research and
production.
David J. Peterson was appointed Senior Vice President of Agricultural
Development for Sun World in September 1996 and is responsible for
sourcing new product sales opportunities by expanding Sun World's
worldwide grower base. Previously he was Vice President of Agricultural
Development for Cadiz, where he oversaw farming operations and worked
extensively with joint venture grower partners. From 1990 to 1994,
Mr. Peterson served as Chief Operating Officer of Fisher Procurement,
Inc., a centralized marketing and purchasing division of Albert Fisher
North America. Prior to 1990, he managed all produce purchasing for
Sysco Corp., the largest United States food distributor. He served on
the Produce Marketing Association's board of directors and has chaired
several industry committees.
Barton Beek is an attorney who has practiced law for 40 years, and is
currently with the firm of O'Melveny & Myers. He has experience in
corporate financing transactions, organization of corporate, joint
venture and limited partnership enterprises, equity offerings, private
and public debt offerings and other corporate transactions. Mr. Beek is
Chairman of the Audit Committee of the Board of Directors of Sun World.
Dwight W. Makins was elected as Chairman of the Board of Cadiz in
December 1991, and was elected a Director of Sun World and of each of
Sun World's Subsidiary Guarantors in September 1996. Mr. Makins
currently serves as Chairman of Greenway Holdings plc, a British waste
oil recycling company and as a director of several other British
companies. Prior to a change in ownership which occurred in January
1997, Mr. Makins was a director of King and Shaxson (Holdings) plc, a
British bank and discount house. Prior to July 1988, he was managing
director of John Govett & Co. Ltd. Mr. Makins is a member of the
Compensation Committee of the Board of Directors of Sun World
Mitt Parker is a Director of Sun World and has been working in the
produce industry for 25 years. Since 1994 he has been the South
Atlantic Regional Vice President of Albert Fisher Group, PLC. In 1989
he sold the Mitt Parker Company, which he had founded in 1975, and its
food service distribution division, Atlanta's Finest Foods, to Albert
Fisher Group, PLC. He continued to manage that company until 1994. He
also owns Parker Holdings Limited, which has various other produce
holding investments, mainly in the service area of the business. Mr.
Parker serves as Chairman of the Compensation Committee and as a member
of the Audit Committee of the Board of Directors of Sun World.
Susan K. Chapman became Chief Financial Officer and Secretary of
Cadiz in November 1993 and in July 1997 became Senior Vice President
Administration and relinquished her duties as Chief Financial Officer.
Additionally, in July 1997 Ms. Chapman was appointed Secretary of Sun
World. From 1985 until she joined Cadiz, Ms. Chapman served as Vice
President of Operations and Controller of Agora Development, Inc., a
private real estate development company, where she supervised all
financial and operational aspects of such company. Prior thereto, she
served for five years as Senior Accountant with the accounting firm of
Price Waterhouse LLP, following which she served as a senior financial
executive of a privately held manufacturing company. Ms. Chapman is a
Certified Public Accountant.
CADIZ DIRECTORS AND EXECUTIVE OFFICERS
The following sets forth certain biographical information, the
present occupation and business experience for the past five years of
each director and executive officer of Cadiz:
Name Age Position
---- ----- ----------
Dwight W. Makins 46 Chairman of the Board
Keith Brackpool 40 Chief Executive Officer and Director
Susan K. Chapman 44 Senior Vice President Administration
and Secretary
Stanley E. Speer 36 Chief Financial Officer
Russ Hammond 55 Director
Stephen D. Weinress 56 Director
Murray H. Hutchison 58 Director
Dwight W. Makins was elected as Chairman of the Board of Cadiz in
December 1991. Mr. Makins currently serves as Chairman of Greenway
Holdings plc, a British waste oil recycling company and as a director of
several other British companies. Prior to a change in ownership which
occurred in January 1997, Mr. Makins was a director of King and Shaxson
(Holdings) plc, a British bank and discount house. Prior to July 1988,
he was managing director of John Govett & Co. Ltd. Mr. Makins is a
member of the Audit Committee and Compensation Committee of the Board of
Directors of Cadiz.
Keith Brackpool is a founder of Cadiz, and has served as a member of
Cadiz Board of Directors since September 1986, and served as Chairman of
the Board from 1989 through December 1991, when he was reappointed as
Chief Executive Officer of Cadiz. From October 1989 until May 1991,
Mr. Brackpool was employed as the President of Albert Fisher, Inc., a
wholly-owned subsidiary of The Albert Fisher Group PLC, a U.K.
corporation and was a director of The Albert Fisher Group PLC until
May 31, 1991. Since 1988, Mr. Brackpool has served as an officer and
principal of the general partner of 1334 Partners, Ltd., a California
limited partnership which holds commercial real estate in Southern
California.
Susan K. Chapman became Chief Financial Officer and Secretary of
Cadiz in November 1993 and in July 1997 became Senior Vice President
Administration and relinquished her duties as Chief Financial Officer.
Additionally, in July 1997 Ms. Chapman was appointed Secretary of Sun
World. From 1985 until she joined Cadiz, Ms. Chapman served as Vice
President of Operations and Controller of Agora Development, Inc., a
private real estate development company, where she supervised all
financial and operational aspects of such company. Prior thereto, she
served for five years as Senior Accountant with the accounting firm of
Price Waterhouse LLP, following which she served as a senior financial
executive of a privately held manufacturing company. Ms. Chapman is a
Certified Public Accountant.
Stanley E. Speer joined Sun World as Senior Vice President, Chief
Financial Officer and Secretary following completion of the Sun World
acquisition. Since that time, Mr. Speer has also served as Chief
Financial Officer and Secretary of each of Sun World's Subsidiary
Guarantors. On July 15, 1997, Mr. Speer was appointed Chief Financial
Officer of Cadiz and has relinquished his duties as Secretary of Sun
World. Mr. Speer has fifteen years of experience in public accounting
with the accounting firm of Coopers & Lybrand LLP. Since 1992,
Mr. Speer has served as a partner in their financial advisory services
group specializing in business reorganizations and mergers and
acquisitions consulting. Mr. Speer is a Certified Public Accountant and
a Certified Insolvency and Reorganization Accountant.
Russ Hammond was named to Cadiz Board of Directors in December 1991.
Since March 1987 Mr. Hammond has been self-employed, and his business
activities primarily involve private investments in various companies.
Mr. Hammond also serves as Chairman of a Canadian oil and gas company
traded on the Alberta exchange. Prior to March 1987, Mr. Hammond was
managing director of Greenwell-Montagu Securities, a British brokerage
firm. Mr. Hammond serves as the Chairman of the Audit Committee of the
Board of Directors of Cadiz.
Stephen D. Weinress was appointed a director of Cadiz in
September 1993. Since 1984 he has been the Managing Director of
L.H. Friend, Weinress, Frankson & Presson, Inc., an investment banking
firm based in Irvine, California. Mr. Weinress is a member of the Audit
Committee and Compensation Committee of the Board of Directors of Cadiz.
Murray H. Hutchison was appointed a director of Cadiz in June 1997.
Since his retirement in 1994 from International Technology Corporation
("ITC"), Mr. Hutchison has been self-employed with his business
activities involving primarily the management of an investment
portfolio. From 1976 to 1994, Mr. Hutchison served as Chief Executive
Officer and Chairman of ITC, a diversified environmental management
company traded on the New York Stock Exchange. Mr. Hutchison also
serves as a director of several other U.S. companies. Mr. Hutchison
serves as Chairman of the Compensation Committee of the Board of
Directors of Cadiz.
Directors of Cadiz and Sun World hold office until the next annual
meeting of stockholders or until their successors are elected and
qualified. There are no family relationships between any directors or
current officers of Sun World. Officers serve at the discretion of the
Board of Directors.
EXECUTIVE COMPENSATION
The tables and discussion below set forth information about the
compensation awarded to, earned by, or paid to the following executive
officers and significant employees of Cadiz and Sun World during the
nine months ended December 31, 1996 and the fiscal years ended
March 31, 1996 and 1995.
Summary Compensation Table
Long-Term
Compensation Awards
-------------------
Name and Annual Compensation(2) Restricted
Principal ---------------------- Stock Stock
Position Fiscal Year (1) Salary Bonus Awards(3) Options
- ----------- ---------------- --------- ------- ---------- --------
Keith
Brackpool December 31, 1996 $ 306,250 $ 625,000 $ 656,250 250,000(4)
Chief March 31, 1996 350,000 175,000 -0- -0-
Executive March 31, 1995 280,000 -0- -0- 750,000
Officer
Susan K.
Chapman(5) December 31, 1996 95,000 25,000 -0- -0-
Senior March 31, 1996 130,000 -0- -0- -0-
Vice March 31, 1995 110,000 -0- -0- 25,000(6)
President
and Secretary
Timothy J.
Shaheen(7) December 31, 1996 181,891 25,000 -0- 400,000(8)
Executive March 31, 1996 44 551 -0- -0- -0-
Officer -
Sun World
Stanley E.
Speer(9) December 31,1996 79,607 56,250 -0- 200,000(10)
Chief
Financial
Officer
Michael J.
Aiton(11) December 31, 1996 40,665 37,850 -0- 100,000(12)
Senior Vice
President
of Sales -
Sun World
Kevin S.
Andrew(13) December 31, 1996 43,357 40,000 -0- 100,000(14)
Senior
Vice
President
of Operations
- Sun World
David O.
Marguleas(15) December 31, 1996 39,319 12,850 -0- 100,000(16)
Senior Vice
President of
Marketing
and Corporate
Development
- Sun World
David J.
Peterson(17) December 31, 1996 134,599 -0- -0- -0-
Senior Vice March 31, 1996 185,000 -0- -0- 50,000(18)
President March 31, 1995 150,000 30,000 -0- 200,000(19)
Agricultural
Development
- - Sun World
- -------------------------
(1) In December 1996 Cadiz changed its fiscal year end from March 31 to
December 31. Consequently, information is presented in this table
for the nine months ended December 31, 1996 and the fiscal years
ended March 31, 1996 and 1995. The total annual salary and bonus of
each executive officer for whom compensation has been disclosed for
the nine months ended December 31, 1996 exceeds $100,000, on an
annualized basis.
(2) No column for "Other Annual Compensation" has been included to show
compensation not properly categorized as salary or bonus, which
consisted entirely during each fiscal year of perquisites and other
personal benefits, the aggregate amount of which did not exceed the
lesser of either $50,000 or ten percent of the total of annual salary
and bonus reported for each of the above named executive officers for
each fiscal year. See "Employment Arrangements."
(3) On March 24, 1997, with a retroactive grant date of September 13,
1996, Cadiz awarded Mr. Brackpool a total of 125,000 shares of
restricted stock, at no cost, in consideration of extraordinary
services performed during 1996 in connection with Cadiz' acquisition
of Sun World, subject to the satisfaction of certain conditions,
namely, that (i) 50,000 of the shares would vest and be issued upon
completion of a refinancing of Sun World's secured debt (which
refinancing was completed on April 16, 1997), and (ii) 25,000 of the
shares would vest and be issued each year on September 12, 1997,
1998 and 1999, if Mr. Brackpool is then employed by Cadiz as its
Chief Executive Officer. If Mr. Brackpool's employment is terminated
without cause prior to the vesting or issuance of any of these
shares, all of such shares will immediately vest and be issued. None
of the 125,000 shares were issued at December 31, 1996. Dividends
will be paid on such shares (when issued and outstanding) only to the
same extent, if any, that dividends are paid on all other outstanding
shares of Common Stock. No other shares of restricted stock have
been awarded to date by Cadiz as compensation to either of its or Sun
World's executive officers.
(4) The 250,000 options granted to Mr. Brackpool during the fiscal year
ended December 31, 1996 were conditional options, of which 125,000 of
such options have since vested.
(5) Ms. Chapman joined Cadiz in November 1993 as Chief Financial Officer
and Secretary. On July 15, 1997, Ms. Chapman was appointed Senior
Vice President of Administration of Cadiz and Secretary of Sun World.
Ms. Chapman was relieved of her duties as Chief Financial Officer of
Cadiz; however, she continues to serve as its Secretary.
(6) The 25,000 options granted to Ms. Chapman during the fiscal year
ended March 31, 1995 were conditional options, all of which have
since vested.
(7) Mr. Shaheen joined Cadiz in January 1996 and on September 14, 1996
was appointed Chief Executive Officer of Sun World. Salary reported
for the fiscal year ended March 31, 1996 represents compensation for
the period January 1996 through March 31, 1996.
(8) The 400,000 options granted to Mr. Shaheen during the fiscal year
ended December 31, 1996, in consideration of providing services under
his employment agreement, were conditional options, of which 150,000
such options have since vested.
(9) Mr. Speer joined Cadiz in August 1996 and on September 14, 1996 was
appointed Chief Financial Officer of Sun World. On July 15, 1997,
Mr. Speer was appointed Chief Financial Officer of Cadiz in addition
to his role as Chief Financial Officer of Sun World.
(10) The 200,000 options granted to Mr. Speer during the fiscal year ended
December 31, 1996, in consideration of providing services under his
employment agreement, were conditional options, of which 150,000 such
options have since vested.
(11) On September 14, 1996, Mr. Aiton was appointed Senior Vice President
of Sales of Sun World.
(12) The 100,000 options granted to Mr. Aiton during the fiscal year ended
December 31, 1996, in consideration of providing services under his
employment agreement, were conditional options, none of which have
since vested.
(13) On September 14, 1996, Mr. Andrew was appointed Senior Vice President
of Operations of Sun World.
(14) The 100,000 options granted to Mr. Andrew during the fiscal year
ended December 31, 1996, in consideration of providing services under
his employment agreement, were conditional options, none of which have
since vested.
(15) On September 14, 1996, Mr. Marguleas was appointed Senior Vice
President of Marketing and Corporate Development of Sun World.
(16) The 100,000 options granted to Mr. Marguleas during the fiscal year
ended December 31, 1996, in consideration of providing services under
his employment agreement, were conditional options, none of which have
since vested.
(17) Mr. Peterson joined Cadiz in April 1994 as Senior Vice President of
Agricultural Development and on September 14, 1996, relinquished
those duties at Cadiz and was appointed Senior Vice President of
Agricultural Development of Sun World.
(18) The 50,000 options granted to Mr. Peterson during the fiscal year
ended March 31, 1996 were conditional options, none of which have
since vested.
(19) Mr. Peterson was granted 200,000 options during the fiscal year ended
March 31, 1995, of which 100,000 options were conditional. Since
that time, an additional 50,000 options have since vested.
Option Grants in Last Fiscal Year
Percent
of
Total Potential
Options Realizable Value
Granted Exercise at Assumed Annual
to Price Rates of Stock
Employees Per Expira- Price Appreciation
Options Fiscal Share tion for option term(5)
Name Granted(1) Year(2) ($/Sh)(3) Date(4) 5% 10%
----------- ------- --------- ------- -------- --------
Keith
Brackpool 250,000(6) 13.89% $4.50 9-13-01 $ 310,817 $ 703,295
Timothy J.
Shaheen 400,000(7) 22.22% $4.50 9-13-01 $ 497,307 $1,125,272
Stanley E.
Speer 200,000(8) 11.11% $4.50 9-13-01 $ 248,653 $ 562,636
Michael J.
Aiton 100,000(9) 5.56% $4.75 9-13-01 $ 131,234 $ 296,947
Kevin S.
Andrew 100,000(10) 5.56% $4.75 9-13-01 $ 131,234 $ 296,947
David O.
Marguleas 100,000(11) 5.56% $4.75 9-13-01 $ 131,234 $ 296,947
- -------------------
(1) All options are for the purchase of Cadiz common stock. All options
granted to the named officer were incentive options.
(2) Includes all options granted to employees of both Cadiz and Sun
World. Also includes options granted to consultants of Cadiz and
Sun World during the fiscal year.
(3) All options were granted at market value (average of closing bid
and asked prices for Cadiz' Common Stock as reported by Nasdaq) at
date of grant.
(4) All options have a fixed term of five years.
(5) Potential gains are reported net of the option exercise price, but
before taxes associated with exercise. These amounts represent
certain assumed rates of appreciation only. Actual gains on stock
option exercises are dependent on the future performance of the
Common Stock and overall stock market conditions. The amounts
reflected in this table may not necessarily be achieved.
(6) Of this total, 125,000 options have vested and 125,000 options are
to vest at such time as the stock of Cadiz is traded at $9.00 per
share.
(7) Of this total, 150,000 options have vested, 100,000 options vest
within one year following the date of the grant, 50,000 options are
conditioned upon certain performance criteria associated with
Cadiz, and 100,000 options are conditioned upon certain criteria to
be established by the Board of Directors.
(8) Of this total, 150,000 options have vested, 25,000 options are
conditioned upon certain performance criteria associated with
Cadiz, and 25,000 options are conditioned upon certain criteria to
be established by the Board of Directors.
(9) All 100,000 options are conditional until September 1999.
(10) All 100,000 options are conditional until September 1999.
(11) All 100,000 options are conditional until September 1999.
Aggregated Option Exercises in Last Fiscal Year(1)
and
Fiscal Year-End Option Values
Value of
Number of Unexercised
Unexercised In-the-Money
Options at Options at
FY-End (#) FY-End ($)
Exercisable/ Exercisable/
Name Unexercisable Unexercisable(2)
------------------- -------------------- --------------------
Keith Brackpool 750,000/250,000(3) $281,250/$93,750
Susan K. Chapman 125,000/0(4) $196,875/0
Timothy J. Shaheen 0/400,000(5) $0/150,000
Stanley E. Speer 0/200,000(6) $0/75,000
Michael J. Aiton 0/100,000(7) $0/12,500
Kevin S. Andrew 0/100,000(7) $0/12,500
David O. Marguleas 0/100,000(7) $0/12,500
David J. Peterson 150,000/100,000(8) $93,750/$62,500
-----------------------
(1) All options are for the purchase of Cadiz common stock.
No options were exercised by the named executive officers
during the last fiscal year.
(2) Based upon the Nasdaq National Market closing sales price per
share at fiscal year end.
(3) Includes 750,000 shares underlying presently exercisable
options. Also includes 250,000 shares underlying conditional
options, the conditions to the vesting of which had not been
met as of December 31, 1996.
(4) Includes 125,000 shares underlying presently exercisable
options.
(5) Includes 400,000 shares underlying conditional options, the
conditions to the vesting of which had not been met as of
December 31, 1996.
(6) Includes 200,000 shares underlying conditional options, the
conditions to the vesting of which had not been met as of
December 31, 1996.
(7) Includes 100,000 shares underlying conditional options, the
conditions to the vesting of which had not been met as of
December 31, 1996.
(8) Includes 150,000 shares underlying presently exercisable
options. Also includes 100,000 shares underlying conditional
options, the conditions to the vesting of which had not been
met as of December 31, 1996.
EMPLOYMENT ARRANGEMENTS
Mr. Brackpool is compensated by Cadiz pursuant to a Compensation
Agreement effective as of April 2, 1993. Under the terms of this
Agreement, Mr. Brackpool receives compensation of $41,667 per month of
which $12,500 is paid by Sun World. Mr. Brackpool may receive additional
compensation in the form of bonuses at the sole discretion of the Board of
Directors of Cadiz. Mr. Brackpool also receives the use of an automobile
leased by Sun World.
Ms. Chapman is compensated by Cadiz pursuant to a letter agreement
effective November 5, 1993 which provides for base compensation of $130,000
per annum. Ms. Chapman may receive additional compensation in the form of
bonuses at the sole discretion of the Board of Directors of Cadiz.
Ms. Chapman also receives the use of an automobile owned by Cadiz.
Timothy J. Shaheen has been engaged as Chief Executive Officer of Sun
World. In this capacity, Mr. Shaheen receives compensation from Sun World
at an annual rate of $250,000 and the Board of Directors has approved, in
consideration of Mr. Shaheen's agreement to provide services under his
employment agreement, the grant to Mr. Shaheen of an aggregate of 400,000
incentive stock options for the purchase of Common Stock of Cadiz at an
exercise price of $4.50 per share. The vesting of 250,000 of these options
is subject to the satisfaction of certain performance criteria which are
either tied to the performance of Sun World or are subject to the discretion
of Sun World's Board of Directors. Mr. Shaheen will be entitled to receive
a supplemental bonus during the year ended December 31, 1997 not to exceed
100% of his base compensation, subject to the satisfaction of certain
performance criteria which are tied to the performance of Sun World. Mr.
Shaheen may receive additional compensation in the form of annual bonuses
at the sole discretion of the Board of Directors of Sun World. Mr. Shaheen
also receives the use of an automobile leased by Sun World.
Stanley E. Speer has been engaged as Senior Vice President and Chief
Financial Officer of Cadiz and Sun World. In this capacity, Mr. Speer
receives compensation at an annual rate of $225,000 and the Board of
Directors has approved, in consideration of Mr. Speer's agreement to
provide services under his employment agreement, the grant to Mr. Speer
of an aggregate of 200,000 incentive stock options for the purchase of
Common Stock of Cadiz at an exercise price of $4.50 per share. The vesting
of 50,000 of these options is subject to the satisfaction of certain
performance criteria which are either tied to the performance of Sun World
or are subject to the discretion of Sun World's Board of Directors. Mr.
Speer will be entitled to receive a supplemental bonus during the year
ended December 31, 1997 not to exceed 50% of his base compensation, subject
to the satisfaction of certain performance criteria which are either tied
to the performance of Sun World or are subject to the discretion of Sun
World's Board of Directors. Mr. Speer may receive additional compensation
in the form of annual bonuses at the sole discretion of the Board of
Directors of Sun World. Mr. Speer also receives the use of an automobile
leased by Sun World.
Michael J. Aiton has been engaged as Senior Vice President of Sales of
Sun World. In this capacity, Mr. Aiton receives compensation from Sun
World at an annual rate of $150,000 and the Board of Directors has approved,
in consideration of Mr. Aiton's agreement to provide services under his
employment agreement, the grant to Mr. Aiton of an aggregate of 100,000
incentive stock options for the purchase of Common Stock of Cadiz at an
exercise price of $4.75 per share. In addition, Mr. Aiton received a
$25,000 bonus in consideration of the execution of his employment
agreement. Mr. Aiton may receive additional compensation in the form of
annual bonuses in accordance with Sun World's employee bonus program.
Mr. Aiton also receives the use of an automobile leased by Sun World.
Kevin S. Andrew has been engaged as Senior Vice President of Operations
of Sun World. In this capacity, Mr. Andrew receives compensation from Sun
World at an annual rate of $161,000 and the Board of Directors has approved,
in consideration of Mr. Andrew's agreement to provide services under
his employment agreement, the grant to Mr. Andrew of an aggregate of 100,000
incentive stock options for the purchase of Common Stock of Cadiz at an
exercise price of $4.75 per share. Mr. Andrew may receive additional
compensation in the form of annual bonuses in accordance with Sun World's
employee bonus program. Mr. Andrew also receives the use of an automobile
leased by Sun World.
David O. Marguleas has been engaged as Senior Vice President of
Marketing and Corporate Development of Sun World. In this capacity, Mr.
Marguleas receives compensation from Sun World at an annual rate of
$145,000 and the Board of Directors has approved, in consideration of
Mr. Marguleas' agreement to provide services under his employment agreement,
the grant to Mr. Marguleas of an aggregate of 100,000 incentive stock
options for the purchase of Common Stock of Cadiz at an exercise price
of $4.75 per share. Mr. Marguleas may receive additional compensation
in the form of annual bonuses in accordance with Sun World's employee
bonus program. Mr. Marguleas also receives the use of an automobile
leased by Sun World.
David J. Peterson has been engaged as Senior Vice President of
Agricultural Development of Sun World. In this capacity, Mr. Peterson
receives compensation from Sun World at an annual rate of $185,000 and the
Board of Directors has approved the grant to Mr. Peterson of an aggregate
of 250,000 incentive stock options for the purchase of Common Stock of
Cadiz at an exercise price of $4.25 per share. Mr. Peterson may receive
additional compensation in the form of annual bonuses in accordance with
Sun World's employee bonus program. Mr. Peterson also receives the use of
an automobile leased by Sun World.
COMPENSATION OF DIRECTORS
Mr. Brackpool does not receive any additional compensation for serving
as a director of either Sun World or Cadiz.
Mr. Makins receives cash compensation for his services as Chairman of
Cadiz pursuant to a Compensation Agreement effective April 2, 1993, which
provides for base compensation of $75,000 per year, payable quarterly in
advance, plus payment for certain additional services performed on behalf
of Cadiz, consisting primarily of financial advisory and general business
consulting services, at the rate of $1,000 per day. During Cadiz' 1996
fiscal year, Mr. Makins received total cash compensation of $77,750
pursuant to this Compensation Agreement. Mr. Makins receives cash
compensation for his services as a director of Sun World in the amount of
$25,000 per year, payable quarterly in advance.
Mr. Hammond receives cash compensation for his services as a Director
of Cadiz pursuant to a Compensation Agreement effective April 2, 1993,
which provides for compensation of $25,000 per year, payable quarterly in
advance. During Cadiz' 1996 fiscal year, Mr. Hammond received total cash
compensation of $25,000 pursuant to this arrangement.
Mr. Weinress receives cash compensation for his services as a Director
of Cadiz in the amount of $25,000 per year, payable quarterly in advance.
During Cadiz' 1996 fiscal year, Mr. Weinress received total cash
compensation of $25,000 pursuant to this arrangement.
Mr. Hutchison receives cash compensation for his services as a Director
of Cadiz in the amount of $25,000 per year, payable quarterly in advance.
As a Director of Sun World, Mr. Beek receives cash compensation in the
amount of $25,000 per year, payable quarterly in advance.
Mr. Parker receives cash compensation for his services as a Director of
Sun World in the amount of $25,000 per year, payable quarterly in advance.
PRINCIPAL STOCKHOLDERS
All of the outstanding shares of common stock of Sun World are held by
Cadiz, and all of the outstanding shares of the Subsidiary Guarantors are
held by Sun World.
The following table sets forth, as of October 3, 1997, the ownership of
Common Stock of Cadiz by each stockholder who is known by Cadiz to own
beneficially more than 5 percent of the outstanding Common Stock, by each
director, by each executive officer listed in the Summary Compensation
Table (see "Executive Compensation"), and by all directors and officers as
a group.
Amount and
Nature of
Beneficial Percent
Name and Address Ownership of Class
--------------------------------------- ------------- ----------
Morgan Stanley Group, Inc., et al. 2,528,276(1) 7.77%
1251 Avenue of the Americas
New York, NY 10020
Fidelity International Limited, et al. 2,670,667(2) 8.21%
Pembroke Hall
42 Crow Lane
Hamilton, Bermuda
The Capital Group Companies, Inc. 1,715,000(3) 5.27%
333 South Hope Street
Los Angeles, CA 90071
Dwight W. Makins 425,000(4) 1.29%
Beaurepaire House
Bramley, Tadley
Hampshire RG26 5EH
United Kingdom
Keith Brackpool 1,138,893(5) 3.41%
100 Wilshire Boulevard
Sixteenth Floor
Santa Monica, CA 90401-1115
Russ Hammond 905,600(6) 2.77%
10 Compton Terrace
London N1 2UN
United Kingdom
Stephen D. Weinress 201,158(7) *
3333 Michelson Drive
Irvine, CA 92715
Murray H. Hutchison -0- (8) *
17134 El Vuelo
Rancho Santa Fe, CA 92067
Susan K. Chapman 127,700(9) *
100 Wilshire Boulevard
Sixteenth Floor
Santa Monica, CA 90401-1115
Timothy J. Shaheen 155,000(10) *
P.O. Box 80298
Bakersfield, CA 93380
Stanley E. Speer 150,000(11) *
P.O. Box 80298
Bakersfield, CA 93380
Michael J. Aiton -0- (12) *
P.O. Box 1028
Coachella, CA 92236
Kevin Andrew -0- (13) *
P.O. Box 80298
Bakersfield, CA 93380
David O. Marguleas -0- (14) *
P.O. Box 1028
Coachella, CA 92236
David J. Peterson 150,000(15) *
P.O. Box 80298
Bakersfield, CA 93380
All Directors and Officers as a Group 3,253,351(3) 9.42%
(12 individuals) (4)(5)(6)
(7)(8)(9)
(10)(11)(12)
(13)(14)(15)
-----------------------
* Less than 1%
(1) Morgan Stanley Group, Inc. ("MS Group") filed a Schedule 13G with
the Securities and Exchange Commission indicating that they are
the indirect beneficial owner of 2,528,276 shares of Common
Stock, arising from the indirect beneficial ownership of such
shares by Morgan Stanley Asset Management Limited ("MSAM"), a
subsidiary of MS Group. The address of MSAM is 25 Cabot Square,
Canary Wharf, London E14 4QA, England. All such shares are held
by MSAM in its capacity as an Investment Adviser, and MS Group
and MSAM share voting and investment power with respect to the
shares which they may be deemed to beneficially own. MS Group
and MSAM each disclaim beneficial ownership of such shares
pursuant to Rule 13d-4 under the Securities Exchange Act of 1934.
(2) Fidelity International Limited ("FIL") and FMR Corp. ("FMR") have
each filed Schedule 13Ds and amendments thereto with the
Securities and Exchange Commission indicating that, although
they do not consider themselves to be acting as a "group," they
hold, directly or indirectly, a total of 2,670,667 shares of
Common Stock. The Schedule 13Ds state that FIL beneficially
owns, as investment adviser or the parent of the investment
adviser to certain international funds and international pension
accounts, 2,670,667 shares of Common Stock and that such funds
and accounts and FIL, as investment adviser to the funds and
accounts, have sole voting and investment power as to all such
shares. A partnership controlled by Mr. Edward C. Johnson 3d and
members of his family own shares of FIL with the right to cast
approximately 47.22 percent of the total votes which may be cast
by shareholders of FIL. According to the Schedule 13Ds, FMR
beneficially owns, through Fidelity Management Trust Company,
7,400 shares of Cadiz' Common Stock. Mr. Johnson, who is
Chairman of FIL and FMR, and certain family members, are the
predominant owners of FMR's Class B shares of common stock
representing approximately 49 percent of the voting power of FMR.
Mr. Johnson and Abigail Johnson together own 36.5 percent of the
outstanding voting stock of FMR. The Johnson family group and
all other Class B shareholders have entered into a shareholders'
voting agreement under which all Class B shares will be voted in
accordance with the majority vote of Class B shares. The
Schedule 13Ds indicate that FIL was a subsidiary of Fidelity
Management & Research Company ("Fidelity") prior to June 30,
1980, at which time the shares of FIL held by Fidelity were
distributed as a dividend to the shareholders of FMR, and that
FIL currently operates as an entity independent of FMR and
Fidelity. The principal offices of FMR, Fidelity and Mr. Johnson
are located at 82 Devonshire Street, Boston, Massachusetts 02109.
(3) According to information provided to Cadiz, the Capital Group
Companies, Inc. may be deemed to be the indirect beneficial owner
of 1,715,000 shares of Common Stock as Discretionary Manager by
virtue of its affiliates acting as investment manager to a number
of institutional investors.
(4) Includes 300,000 shares underlying presently exercisable options.
(5) Includes 875,000 shares underlying presently exercisable options.
Does not include 50,000 shares issuable upon the satisfaction of
certain conditions established by the Board of Directors, none of
which have been met.
(6) Includes 260,000 shares held by a corporation of which Mr.
Hammond is an affiliate. Also includes 125,000 shares underlying
presently exercisable options and 440,000 Conversion Shares and
21,995 Dividend Shares held by Mr. Hammond and members of his
family.
(7) Includes 125,000 shares underlying presently exercisable options.
Also includes 19,200 Conversion Shares and 958 Dividend Shares.
(8) Does not include 25,000 options subject to vesting not earlier
than December 12, 1997.
(9) Includes 125,000 shares underlying presently exercisable options.
(10) Includes 150,000 shares underlying presently exercisable options.
Does not include 250,000 shares underlying conditional options
held by Mr. Shaheen, the conditions to the vesting of which have
not yet been met.
(11) Includes 150,000 shares underlying presently exercisable options.
Does not include 50,000 shares underlying conditional options
held by Mr. Speer, the conditions to the vesting of which have
not yet been met.
(12) Does not include 100,000 shares underlying conditional options
held by Mr. Aiton, the conditions to the vesting of which have
not been met.
(13) Does not include 100,000 shares underlying conditional options
held by Mr. Andrew, the conditions to the vesting of which have
not been met.
(14) Does not include 100,000 shares underlying conditional options
held by Mr. Marguleas, the conditions to the vesting of which have
not been met.
(15) Includes 150,000 shares underlying presently exercisable options.
Does not include 100,000 shares underlying conditional options
held by Mr. Peterson, the conditions to the vesting of which have
not been met.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
SUN WORLD
On September 13, 1996, concurrently with the Sun World Acquisition,
Cadiz and Sun World entered into a ten year Services Agreement whereby
Cadiz agreed to provide Sun World with management and administrative
services and facilities. As consideration for services to be performed by
Cadiz under the Services Agreement, Sun World agreed to pay Cadiz the sum
of $1.5 million annually and to reimburse Cadiz for any direct costs
incurred by Cadiz in providing services and facilities to Sun World under
the Services Agreement. In addition to the reimbursement of direct costs,
Sun World paid $375,000 to Cadiz in connection with this Services
Agreement for the period September 14, 1996 to December 31, 1996.
Pursuant to the Services Agreement, Cadiz and Sun World have entered
into a Tax Sharing Agreement whereby Cadiz has agreed to prepare and file
all tax returns required to be prepared and filed on a consolidated basis.
Under the Tax Sharing Agreement, Sun World has agreed to pay to Cadiz an
amount equal to the federal and state income taxes which Sun World would
have paid if it were filing separate returns, and Cadiz will pay to Sun
World an amount equal to any savings obtained by Cadiz from the use of
Company tax losses or credits.
Cadiz owns approximately 1,600 acres of irrigated farmland in San
Bernardino County, California consisting primarily of citrus and grapes.
Pursuant to a ten year lease entered into as of September 13, 1996, Sun
World is responsible for the production, packing and handling, and
marketing of the products on the Cadiz property. Sun World has entered
into a sublease arrangement related to the farming of the Cadiz grape
vineyards. Originally, Cadiz was to recieve an annual payment equal to
33% of the net profit derived from the Cadiz property. However, this
arrangement was subsequently modified in April 1997 to provide for a
total annual rental of $250 per acre.
CADIZ
Since April 1, 1995, Cadiz has issued in private placements a total of
190,000 shares of Common Stock ranging in price from $4.00 per share to
$5.75 per share to Fidelity Investment Services, whose affiliates have
filed a Schedule 13D with the Securities and Exchange Commission indicating
that they hold in excess of five percent of Cadiz' outstanding Common Stock
in their capacity as discretionary manager for a number of investment
funds. See "Principal Stockholders."
Since April 1, 1995, Cadiz has issued in private placements a total of
90,000 shares of common stock at a price of $5.75 per share to Morgan
Stanley Asset Management, Inc. ("MSAM"), an affiliate of Morgan Stanley
Group, Inc., who filed a Schedule 13G with the Securities and Exchange
Commission indicating that it may be deemed to be the indirect beneficial
owner of in excess of five percent of Cadiz' outstanding Common Stock in
its capacity as an Investment Advisor. In addition, on September 13, 1996,
Cadiz issued 2,700 shares of Series A Preferred Stock ("Series A
Preferred") for $1,000 per share to MSAM in an institutional private
placement which provided financing to Cadiz for the Sun World Acquisition.
The Series A Preferred was converted on May 7, 1997 into 720,000 shares of
Common Stock at a conversion price of $3.75 per share. See "Principal
Stockholders."
In connection with a private placement in October 1995, Cadiz issued
82,317 shares of Common Stock at a price of $4.10 per share to a
corporation of which Mr. J. F. R. Hammond, a director of Cadiz, is an
affiliate. In addition, on September 13, 1996, Cadiz issued 1,650 shares
of Series A Preferred at a price of $1,000 per share to Mr. Hammond and
members of his family. These shares of Series A Preferred were converted on
May 7, 1997 into 440,000 shares of Common Stock at a conversion price of
$3.75 per share. See "Principal Stockholders."
In February 1995, L.H. Friend, Weinress, Frankson & Presson, Inc. ("L.H.
Friend"), an investment banking firm which is an affiliate of Mr. Stephen
D. Weinress, a director of Cadiz, entered into an agreement with Cadiz
pursuant to which L.H. Friend provided investment banking services with
respect to the development by Cadiz of its water resources at its Piute
property. Such services consisted of a review of the proposed project and
identification of possible third party participants to a water transaction.
As compensation for these services, Cadiz agreed to pay to L.H. Friend a
retainer fee of $2,000 per month through July 31, 1995. During fiscal year
end March 31, 1996, Cadiz paid to L.H. Friend a total of $8,000 with
respect to the above agreement and to the Weinress Group, a consulting firm
which is an affiliate of Mr. Weinress, placement fees totaling $55,950
related to the identification of participants in the January 1996 and
March 1996 private placements of Cadiz' common stock. In addition,
for services rendered in connection with the identification of participants
in the placement of the Series A Preferred in September 1996, Cadiz paid a
fee to L.H. Friend in the amount of $145,500 and issued 72 shares of
Series A Preferred with a value of $1,000 per share, which were converted
on May 7, 1997 into 19,200 Conversion Shares at a conversion price of
$3.75 per share. See "Principal Stockholders."
Sun World and Cadiz believe that the terms of all of the transactions
described above were at least as favorable to Sun World and Cadiz,
respectively, as those which could have been negotiated in arm's length
transactions with unaffiliated third parties.
DESCRIPTION OF EXCHANGE NOTES
GENERAL
The Old Notes were and the Exchange Notes will be issued pursuant
to an Indenture (the "Indenture") between Sun World, Cadiz and IBJ
Schroder Bank & Trust Company, as trustee (the "Trustee"). The
terms of the Exchange Notes include those stated in the Indenture
and those made part of the Indenture by reference to the Trust
Indenture Act of 1939 (the "Trust Indenture Act"). The Exchange
Notes are subject to all such terms, and Holders of Exchange Notes
are referred to the Indenture and the Trust Indenture Act for a
statement thereof. Copies of the proposed form of Indenture, the
Collateral Documents and Registration Rights Agreement are available
as set forth above under "- Available Information." The
definitions of certain terms used in the following summary are set
forth below under "- Certain Definitions." For purposes of this
summary, the term "Cadiz" refers only to Cadiz Land Company, Inc.
and not to any of its Subsidiaries; and the term the "Issuer" refers
only to Sun World International, Inc. and not to any of its
Subsidiaries.
Except as otherwise indicated below, the following summary applies
to both the Old Notes and the Exchange Notes. As used herein, the
term "Notes" shall mean the Old Notes and the Exchange Notes, unless
otherwise indicated.
The form and terms of the Exchange Notes are substantially
identical to the form and terms of the Old Notes, except that the
Exchange Notes (i) will be registered under the Securities Act, (ii)
will not provide for Liquidated Damages, and (iii) will not bear any
legends restricting transfer thereof. The Exchange Notes will be
issued solely in exchange for an equal principal amount of Old
Notes. As of the date hereof, $115 million aggregate principal
amount of Old Notes is outstanding. See "The Exchange Offer."
As of the date of the Indenture, all of Sun World's Subsidiaries
will be Restricted Subsidiaries. However, under certain
circumstances, Sun World will be able to designate current or future
Subsidiaries as Unrestricted Subsidiaries. Unrestricted
Subsidiaries will not be subject to many of the restrictive
covenants set forth in the Indenture.
PRINCIPAL, MATURITY AND INTEREST
The Notes are limited in aggregate principal amount to
$115.0 million and will mature on April 15, 2004. Interest on the
Notes will accrue at the rate of 11-1/4% per annum and will be
payable semi-annually in arrears on April 15 and October 15,
commencing on October 15, 1997, to Holders of record on the
immediately preceding April 1 and October 1. Interest on the Notes
will accrue from the most recent date to which interest has been
paid or, if no interest has been paid, from the date of original
issuance. Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months. Principal, premium, if any, on
the Notes will be payable at the office or agency of Sun World
maintained for such purpose within the City and State of New York
or, at the option of Sun World, payment of interest may be made by
check mailed to the Holders of the Notes at their respective
addresses set forth in the register of Holders of Notes; provided
that all payments of principal, premium and interest with respect to
Notes the Holders of which have given wire transfer instructions to
Sun World will be required to be made by wire transfer of
immediately available funds to the accounts specified by the Holders
thereof. Until otherwise designated by Sun World, Sun World's
office or agency in New York will be the office of the Trustee
maintained for such purpose. The Notes will be issued in
denominations of $1,000 and integral multiples thereof.
RANKING AND SECURITY
The Notes rank pari passu with all Indebtedness of Sun World that
is not subordinated to the Notes, including borrowings under the
Revolving Credit Agreement. The Notes will rank senior to any
Indebtedness of Sun World that is subordinated to the Notes.
The Notes are unconditionally guaranteed on a senior basis by
Cadiz and by each of the Subsidiary Guarantors (collectively, the
"Guarantors"). See " -Guarantees." The Guarantees will rank pari
passu with all Indebtedness of Cadiz or the Subsidiaries Guarantors,
as the case may be, that is not subordinated to such Guarantees
and senior to any Indebtedness of Cadiz or the Subsidiary Guarantors,
as the case may be, that is subordinated to such Guarantees.
The Notes are secured by a first priority Lien on the Collateral
owned or hereafter acquired by Sun World, subject to Permitted Liens.
Each of the Subsidiary Guarantees will be secured by a first priority
Lien on the Collateral owned or hereafter acquired by each of the
Subsidiary Guarantors, subject to Permited Liens. The Collateral
owned by Sun World includes, without limitation, (i) all of the stock
of Sun World's Subsidiaries, (ii) all of its real property, including
additions and improvements, (iii) all of its personal property, plant,
equipment, furnishings and fixtures, (iv) all of its rights to water
and (v) all trees and vines, in each case excluding the Excluded Assets.
The Collateral owned by the Subsidiary Guarantors includes, without
limitation, (i) all real property, including additions and improvements,
(ii) all personal property, plant, equipment, furnishings and fixtures,
and (iii) all of its rights to water. The Collateral owned by Cadiz
includes all of the assets of Cadiz other than Excluded Assets; however,
as the Excluded Assets include all of the assets of Cadiz other than the
stock of Sun World, the Cadiz Guarantee will be secured by a pledge of
the stock of Sun World. Since the obligations of the Guarantors are
joint and several, the Cadiz Guarantee is, in effect, also secured by
all of the assets of Sun World and of the Subsidiary Guarantors except
for Excluded Assets, and the Subsidiary Guarantees are, in effect, also
secured by the stock of Sun World.
The Excluded Assets currently serve as collateral for Existing
Indebtedness of Sun World and the Subsidiary Guarantors.
Specifically, the Revolving Credit Agreement is secured by a first
priority lien on the Revolving Credit Agreement Collateral. In the
event of a liquidation of Sun World, if the proceeds of a sale of
Collateral were not sufficient to repay all amounts due under the
Notes, the holders of Notes would then only have an unsecured claim
against the assets of Sun World and claims under the Guarantees.
There is currently Existing Indebtedness of Cadiz which is secured
by a first priority Lien on all of Cadiz' assets, other than the
stock of Sun World or partnership interests in subsidiaries. To the
extent that assets of Sun World, the Subsidiary Guarantors or Cadiz
secure their Existing Indebtedness, the unsecured claim of holders
of Notes would be effectively subordinated to such obligations. In
addition, the Indenture permits Cadiz, Sun World and the Subsidiary
Guarantors to create Liens on certain of their assets, including
Liens securing Purchase Money Indebtedness, and the Exchange Notes
and the Guarantees will also be effectively subordinated to such
Purchase Money Indebtedness and other obligations secured by such
Liens to the extent of any assets serving as collateral for such
Indebtedness. The Indenture does not permit Liens on Collateral
other than Permitted Liens. See the definition of "Permitted Liens"
under " -Certain Definitions."
So long as no Default or Event of Default shall have occurred and
be continuing, and subject to certain terms and conditions in the
Indenture and the Collateral Documents, Cadiz, Sun World and its
Subsidiaries will be entitled to receive and retain all cash
dividends, interests and other payments made upon or with respect to
the Collateral pledged by them and to exercise any voting and other
consensual rights pertaining to the Collateral pledged by them.
Upon the occurrence and during the continuance of a Default or Event
of Default, (a) all rights of Cadiz, Sun World and its Subsidiaries
to exercise such voting or other consensual rights shall cease, and
all such rights shall become vested in the Trustee which, to the
extent permitted by law, shall have the sole right to exercise such
voting and other consensual rights and (b) all rights of Cadiz, Sun
World and its Subsidiaries to receive all cash dividends, interest
and other payments made upon or with respect to the pledged
Collateral will cease and such cash dividends, interest and other
payments will be paid to the Trustee, and (c) the Trustee may sell
the pledged Collateral or any part thereof in accordance with the
terms of the Collateral Documents. All funds distributed under the
Collateral Documents and received by the Trustee for the benefit of
the Holders of the Notes will be distributed by the Trustee in
accordance with the provisions of the Indenture.
Under the terms of the Collateral Documents and the Indenture, the
Trustee may foreclose on the pledged Collateral following an Event
of Default. The right of the Trustee to repossess and dispose of
the Collateral upon the occurrence of an Event of Default under the
Indenture and the Collateral Documents is likely to be significantly
impaired by applicable bankruptcy law if a bankruptcy case is
commenced by or against Cadiz, Sun World or any of Sun World's
Subsidiaries prior to the Trustee having repossessed and disposed of
the Collateral, and, in the case of real property Collateral, could
also be significantly impaired by restrictions under state law. See
"Risk Factors -Certain Bankruptcy Limitations" and "Risk Factors-
Certain Limitations under State Law."
The Collateral release provisions of the Indenture permit the
release of Collateral without the substitution of additional
Collateral under certain circumstances, including in connection with
certain Asset Sales. See "- Possession, Use and Release of
Collateral." As described under "- Certain Covenants Asset Sales,"
the Net Proceeds of Asset Sales may be required to be utilized to
make an Asset Sale Offer. To the extent an Asset Sale
Offer is not accepted by Holders, the unutilized Net Proceeds will
be retained by Sun World or the applicable Subsidiary Guarantor,
free and clear of the Lien of the Indenture and the Collateral
Documents. In addition, the term "Asset Sale," will exclude certain
sales or other dispositions of assets, including, subject to limited
exceptions, sales of Revolving Credit Agreement Collateral. See "
- -Certain Definitions." As a result, Sun World and its Subsidiaries
will be permitted to sell certain assets without compliance with the
foregoing provisions. The Collateral will also be released as security
for the Notes and the Guarantees upon a legal defeasance or covenant
defeasance of the Notes (see " -Legal Defeasance and Covenant
Defeasance") and, upon the release of any Subsidiary Guarantor as
described in the last paragraph under " -Guarantees" below, the
Collateral pledged by such Subsidiary Guarantor will be released as
security for its Subsidiary Guarantee.
The consolidated book value of the Collateral at December 31, 1996
was $135 million. The value of the Collateral in the event of a
liquidation will depend upon market and economic conditions, the
availability of buyers and similar factors. In that regard, the
Excluded Assets (which include cash and cash equivalents, accounts
receivable and inventory of Sun World and Sun World's Subsidiaries)
are material to Sun World and Sun World's Subsidiaries and are
necessary to operate their businesses. The fact that the Excluded
Assets are not pledged as security for the Notes could have a
material adverse effect on the value of the Collateral.
Accordingly, there can be no assurance that proceeds of any sale of
the Collateral pursuant to the Indenture and the related Collateral
Documents following an Event of Default would be sufficient to
satisfy, or would not be substantially less than, amounts due under
the Notes. See "Risk Factors -Certain Limitations on the Collateral
and the Guarantees." If the proceeds of any of the Collateral were
not sufficient to repay all amounts due on the Notes, the holders of
the Notes (to the extent not repaid from the proceeds of the sale of
the Collateral) would have only an unsecured claim against the
remaining assets of Cadiz, Sun World and the Subsidiary Guarantors.
By its nature, some or all of the Collateral will be illiquid and
may have no readily ascertainable market value. Likewise, there can
be no assurance that the Collateral will be saleable, or, if
saleable, that there will not be substantial delays in its
liquidation.
GUARANTEES
Sun World's obligations under the Notes are fully and
unconditionally guaranteed, jointly and severally, on a senior
secured basis by Cadiz (the "Cadiz Guarantee"), secured by a pledge
of Sun World's stock, and on a senior secured basis by each of Sun
World's Subsidiary Guarantors (the "Subsidiary Guarantees" and,
together with the Cadiz Guarantee, the "Guarantees"). The
obligation of each Guarantor under its Guarantee, and the grant by
each Guarantor of a Lien on certain of its assets to secure its
obligations under its Guarantee, may be subject to review under
various laws for the protection of creditors, including, without
limitation, laws governing fraudulent conveyances and transfers. To
the extent that the obligations of any Guarantor under its
Guarantee, or the Lien on Collateral granted by any Guarantor, were
held to be unenforceable as a fraudulent conveyance or transfer or
for any other reasons, the holders of Notes would cease to have any
direct claim against such Guarantor and would also cease to have any
Lien on the assets of such Guarantor. In an attempt to avoid this
result, the Guarantees provide that the obligations of each
Guarantor thereunder are limited to the maximum amount as will not
constitute a fraudulent conveyance or fraudulent transfer under
applicable law, and such amount could be substantially less than the
obligations on the Notes. In addition, any limitation on the
amounts payable by a Guarantor under its Guarantee pursuant to such
provision will result in a corresponding limitation on the ability
of the Trustee to realize upon the Collateral pledged by such
Guarantor. See "Risk Factors -Fraudulent Conveyance."
The Indenture provides that neither Cadiz nor any Subsidiary
Guarantor may consolidate with or merge with or into (whether or not
such Guarantor is the surviving Person), another corporation, Person
or entity whether or not affiliated with such Guarantor unless
(i) subject to the provisions of the following paragraph, the Person
formed by or surviving any such consolidation or merger (if other
than such Guarantor) assumes all the obligations of such Guarantor
pursuant to a supplemental indenture and appropriate Collateral
Documents in form and substance reasonably satisfactory to the
Trustee; (ii) immediately after giving effect to such transaction,
no Default or Event of Default exists; (iii) such Guarantor, or any
Person formed by or surviving any such consolidation or merger,
would have Consolidated Net Worth (immediately after giving effect
to such transaction), equal to or greater than the Consolidated Net
Worth of such Guarantor immediately preceding the transaction;
(iv) Sun World would be permitted by virtue of Sun World's pro forma
Fixed Charge Coverage Ratio, immediately after giving effect to such
transaction, to incur at least $1.00 of additional Indebtedness
pursuant to the Fixed Charge Coverage Ratio test set forth in the
covenant described above under the caption "--Certain Covenants -
Incurrence of Indebtedness and Issuance of Preferred Stock;" (v) the
Collateral owned by such Guarantor (in the case of a merger or
consolidation) or the Collateral transferred to the surviving Person
(in the case of a transfer of assets) (A) shall continue to
constitute Collateral under the Indenture and the Collateral
Documents, (B) shall be subject to a Lien in favor of the Trustee
for the benefit of the holders of the Exchange Notes and (C) shall
not be subject to any Lien other than Liens expressly permitted by
the Indenture and the Collateral Documents; (vi) the property and
assets of the Person which is merged or consolidated with or into
such Guarantor or to which the properties and assets of such
Guarantor are transferred, to the extent that they are property and
assets of the types which would constitute Collateral under the
Collateral Documents shall be treated as After-Acquired Property and
such Guarantor or the Surviving Person, as the case may be, shall
take such actions as may be necessary to cause such property and
assets to be made subject to the Lien of the Collateral Documents in
the manner and to the extent required by the Indenture and (vii) in
the case of any consolidation, merger, transfer, assignment or other
disposition involving Cadiz, Cadiz and Sun World have complied with
the provisions of the covenant described in "Certain
Covenants Change of Control."
Except as provided in the immediately preceding paragraph and
under "- Certain Covenants" below, Sun World is not restricted from
selling or otherwise disposing of any Subsidiary Guarantor. The
Indenture provides that, in the event of a sale or other disposition
of all of the assets of any Subsidiary Guarantor, by way of merger,
consolidation or otherwise, or a sale or other disposition of all of
the Capital Stock of any Subsidiary Guarantor (or its parent) owned
by Sun World and its Subsidiaries, in each case to a Person which is
not Sun World or a Subsidiary or Affiliate of Sun World and which is
otherwise made in compliance with the Indenture, such Subsidiary
Guarantor will be released from all of its obligations under its
Subsidiary Guarantee, the Indenture and the Collateral Documents to
which it is a party; provided that (i) such transaction is made in
accordance with the provisions described below under "--Certain
Covenants -Asset Sales;" and (ii) any such release shall occur only
if (a) all Indebtedness owing by such Subsidiary Guarantor to Sun
World or any of its Restricted Subsidiaries or Unrestricted
Subsidiaries shall have been paid in full and (b) all obligations of
such Subsidiary Guarantor under all of its guarantees of, and under
all of its pledges of assets or other Liens which secure,
Indebtedness of Sun World or any of its Restricted Subsidiaries or
Unrestricted Subsidiaries shall also terminate.
OPTIONAL REDEMPTION
The Notes will not be redeemable at Sun World's option prior to
April 15, 2001. Thereafter, the Notes will be subject to redemption
at any time at the option of Sun World, in whole or in part, upon
not less than 30 nor more than 60 days' notice, at the redemption
prices (expressed as percentages of principal amount) set forth
below plus accrued and unpaid interest and any Liquidated Damages
thereon to the applicable redemption date, if redeemed during the
twelve-month period beginning on April 15 of the years indicated
below:
YEAR PERCENTAGE
2001 . . . . . . . . . . . . . . . 105.625%
2002 . . . . . . . . . . . . . . . 102.813%
2003 and thereafter. . . . . . . . 100.000%
If less than all of the Notes are to be redeemed at any time,
selection of Notes for redemption will be made by the Trustee in
compliance with the requirements of the principal national
securities exchange, if any, on which the Notes are listed, or, if
the Notes are not so listed, on a pro rata basis, by lot or by such
method as the Trustee shall deem fair and appropriate; provided that
no Notes of $1,000 or less shall be redeemed in part. Notices of
redemption shall be mailed by first class mail at least 30 but not
more than 60 days before the redemption date to each Holder of Notes
to be redeemed at its registered address. Notices of redemption may
not be conditional. If any Note is to be redeemed in part only, the
notice of redemption that relates to such Note shall state the
portion of the principal amount thereof to be redeemed. A new Note
in principal amount equal to the unredeemed portion thereof will be
issued in the name of the Holder thereof upon cancellation of the
original Note. Notes called for redemption become due on the date
fixed for redemption. On and after the redemption date, interest
ceases to accrue on Notes or portions of them called for redemption.
MANDATORY REDEMPTION
Sun World is not required to make mandatory redemption or
sinking fund payments with respect to the Notes.
CERTAIN COVENANTS
CHANGE OF CONTROL
The Indenture provides that upon the occurrence of a Change of
Control, each Holder of Notes will have the right to require Sun
World to repurchase all or any part (equal to $1,000 or an integral
multiple thereof) of such Holder's Notes pursuant to the offer
described below (the "Change of Control Offer") at an offer price in
cash equal to 101% of the aggregate principal amount thereof plus
accrued and unpaid interest thereon to the date of purchase (the
"Change of Control Payment").
Within 10 days following any Change of Control, Sun World will
mail a notice to each Holder describing the transaction or
transactions that constitute the Change of Control and offering to
repurchase Notes pursuant to the procedures required by the
Indenture and described in such notice. Sun World will comply with
the requirements of Rule 14e-1 under the Act and any other
securities laws and regulations thereunder to the extent such laws
and regulations are applicable in connection with the repurchase of
the Notes as a result of a Change of Control.
The Change of Control Offer will remain open for a period of 20
Business Days following its commencement and no longer, except to
the extent that a longer period is required by applicable law (the
"Change of Control Offer Period"). No later than five Business Days
after the termination of the Change of Control Offer Period (the
"Change of Control Purchase Date"), Sun World will purchase all
Notes tendered in response to the Change of Control Offer. Payment
for any Notes so purchased will be made in the same manner as
interest payments are made.
If the Change of Control Purchase Date is on or after an
interest record date and on or before the related interest payment
date, any accrued and unpaid interest will be paid to the Person in
whose name a Note is registered at the close of business on such
record date, and no additional interest will be payable to Holders
who tender Notes pursuant to the Change of Control Offer.
On the Change of Control Payment Date, Sun World will, to the
extent lawful, (a) accept for payment all Notes or portions thereof
properly tendered pursuant to the Change of Control Offer,
(b) deposit with the Paying Agent an amount equal to the Change of
Control Payment in respect of all Notes or portions thereof so
tendered and (c) deliver or cause to be delivered to the Trustee the
Notes so accepted together with an Officers' Certificate stating the
aggregate principal amount of Notes or portions thereof being
purchased by Sun World. The Paying Agent will promptly mail to each
Holder of Notes so tendered the Change of Control Payment for such
Notes, and the Trustee will promptly authenticate and mail (or cause
to be transferred by book entry) to each Holder a new Note equal in
principal amount to any unpurchased portion of the Notes
surrendered, if any; provided that each such new Note will be in a
principal amount of $1,000 or an integral multiple thereof. Sun
World will publicly announce the results of the Change of Control
Offer on or as soon as practicable after the Change of Control
Payment Date.
Except as described above with respect to a Change of Control,
the Indenture does not contain provisions that permit the Holders of
Notes to require that Sun World repurchase or redeem the Notes in
the event of a takeover, recapitalization or other restructuring.
"Change of Control" means the occurrence of any of the
following: (i) the sale, lease, transfer, conveyance or other
disposition (other than by way of merger or consolidation), in one
or a series of related transactions, of all or substantially all of
the assets of Cadiz, Sun World and Sun World's Subsidiaries taken as
a whole to any "person" (as such term is used in Section 13(d)(3) of
the Act), (ii) the adoption of a plan relating to the liquidation or
dissolution of Cadiz or Sun World, (iii) the consummation of any
transaction (including, without limitation, any merger or
consolidation) the result of which is that any "person" (as defined
above), becomes the "beneficial owner" (as such term is defined in
Rule 13d-3 and Rule 13d-5 under the Act, except that a person shall
be deemed to have "beneficial ownership" of all securities that such
person has the right to acquire, whether such right is currently
exercisable or is exercisable only upon the occurrence of a
subsequent condition), directly or indirectly, of more than 35% of
the Voting Stock of Cadiz (measured by voting power rather than
number of shares), (iv) the first day on which a majority of the
members of the Board of Directors of Sun World are not Continuing
Directors, (v) the first day on which Cadiz ceases to own 100% of
the outstanding Equity Interests of Sun World, or (vi) Cadiz
consolidates with, or merges with or into, any Person or sells,
assigns, conveys, transfers, leases or otherwise disposes of all or
substantially all of its assets to any Person, or any Person
consolidates with, or merges with or into, Cadiz, in any such event
pursuant to a transaction in which any of the outstanding Voting
Stock of Cadiz is converted into or exchanged for cash, securities
or other property, other than any such transaction where the Voting
Stock of Cadiz outstanding immediately prior to such transaction is
converted into or exchanged for Voting Stock (other than
Disqualified Stock) of the surviving or transferee Person
constituting a majority of the outstanding shares of such Voting
Stock of such surviving or transferee Person (immediately after
giving effect to such issuance).
In the State of California (the laws of which govern the
interpretation of the Indenture) the term "all or substantially all"
is subject to judicial interpretation on a case by case basis, and
therefore no objective quantitative test is available in making the
determination as to whether or when a sale of all or substantially
all assets has occurred. Consequently, an assessment by the Trustee
and/or the Holders of Notes that a Change of Control has occurred by
virtue of a sale of all or substantially all assets could be subject
to challenge, thereby impairing the ability of the Holders to
readily obtain the benefits of the foregoing Change of Control
provisions.
ASSET SALES
The Indenture provides that Cadiz and Sun World will not, and
will not permit any of their Restricted Subsidiaries to, consummate
an Asset Sale unless (i) Cadiz, Sun World or the Restricted
Subsidiary, as the case may be, receives consideration at the time
of such Asset Sale at least equal to the fair market value
(evidenced by a resolution of the Board of Directors set forth in an
Officers' Certificate delivered to the Trustee) of the assets or
Equity Interests issued or sold or otherwise disposed of, (ii) at
least 85% of the consideration therefor received by Cadiz, Sun World
or such Restricted Subsidiary is in the form of cash; provided that
the amount of (x) any liabilities (as shown on the most recent
balance sheet of Cadiz, Sun World or any Restricted Subsidiary), of
Cadiz, Sun World or any Restricted Subsidiary (other than contingent
liabilities and liabilities that are by their terms subordinated to
the Notes or any guarantee thereof) that are assumed by the
transferee of any such assets pursuant to a customary novation
agreement that releases Cadiz, Sun World, or such Restricted
Subsidiary from further liability and (y) any securities, notes or
other obligations received by Cadiz, Sun World or any such
Restricted Subsidiary from such transferee that are immediately
converted by Cadiz, Sun World or such Restricted Subsidiary into
cash (to the extent of the cash received), shall be deemed to be
cash for purposes of this provision, (iii) if such Asset Sale
involves the disposition of Collateral, Sun World, Cadiz or such
Restricted Subsidiary has complied with the provisions described
under " -Possession, Use and Release of Collateral," and (iv) Cadiz,
Sun World or the Restricted Subsidiary, as the case may be, applies
the Net Proceeds as provided in the following paragraph.
Any such Net Proceeds shall be applied within 180 days of the
related Asset Sale as follows:
(i) to the extent that such Net Proceeds are derived from
property or assets of Sun World which do not constitute
Collateral or are not deemed (pursuant to the definition in
sub-paragraph (iii) below) to constitute Collateral Proceeds
("Non-Collateral Proceeds"), such Non-Collateral Proceeds may,
at the option of Sun World, be applied to repay Indebtedness
outstanding under the Revolving Credit Agreement or Existing
Indebtedness;
(ii) to the extent that such Net Proceeds are derived from
property or assets of Cadiz which do not constitute Collateral
or are Non-Collateral Proceeds, such Non-Collateral Proceeds
may, at the option of Cadiz, be applied to repay outstanding
Indebtedness of Cadiz; and
(iii) with respect to any Net Proceeds derived from property or
assets which constitute Collateral ("Collateral Proceeds") or
derived from a transaction as a result of which a Subsidiary
Guarantor is released from its Subsidiary Guarantee as provided
in the last paragraph under " -Guarantees" and which (pursuant
to the provisions described below) are deemed to be Collateral
Proceeds, and with respect to any Non-Collateral Proceeds
remaining after application as described in subparagraphs (i)
or (ii) above (all such Collateral Proceeds and amounts deemed
to be Collateral Proceeds, together with any such remaining
Non-Collateral Proceeds being hereinafter called, collectively,
the "Available Amount"), such Available Amount shall, if Sun
World so elects (or if Cadiz so elects in the case of Net
Proceeds derived from property or assets of Cadiz) be applied
to make an investment in properties and assets constituting
Permitted Businesses that replace the properties and assets
that were the subject of such Asset Sale or in properties and
assets that will constitute Permitted Businesses ("Replacement
Assets"); provided that any Replacement Assets acquired with
any such Collateral Proceeds or amounts deemed to constitute
Collateral Proceeds (A) shall be owned by Cadiz, Sun World or
the Subsidiary Guarantor that made the Asset Sale and shall not
be subject to any Liens except as expressly permitted by the
Indenture and the Collateral Documents (and Cadiz, Sun World or
such Subsidiary Guarantor, as the case may be, shall execute
and deliver to the Trustee such Collateral Documents or other
instruments as shall be necessary to cause such Replacement
Assets to become subject to a Lien in favor of the Trustee, for
the benefit of the holders of the Exchange Notes, securing its
obligations under the Exchange Notes or its Guarantee, as the
case may be, and otherwise shall comply with the provisions of
the Indenture applicable to After-Acquired Property); and
(B) shall not include any Excluded Assets.
Any portion of the Available Amount that is not used as
described in subparagraph (i), (ii) or (iii) above within such 180-day
period shall constitute "Excess Proceeds" subject to disposition
as provided below. When the aggregate amount of Excess Proceeds
exceeds $5.0 million, Sun World will be required to make an offer to
all Holders of Exchange Notes (an "Asset Sale Offer") to purchase
the maximum principal amount of Exchange Notes that may be purchased
out of the Excess Proceeds, at an offer price in cash in an amount
equal to 100% of the principal amount thereof plus accrued and
unpaid interest and Liquidated Damages thereon, if any, to the date
of purchase, in accordance with the procedures set forth in the
Indenture. To the extent that the aggregate amount of Exchange
Notes tendered pursuant to an Asset Sale Offer is less than the
Excess Proceeds, Sun World (or Cadiz, to the extent that Excess
Proceeds are derived from the sale of property or assets of Cadiz,)
may use any remaining Excess Proceeds for general corporate
purposes. If the aggregate principal amount of Exchange Notes
surrendered by Holders thereof exceeds the amount of Excess
Proceeds, the Trustee shall select the Exchange Notes to be
purchased on a pro rata basis. Upon completion of such offer to
purchase, the amount of Excess Proceeds shall be reset at zero.
All Collateral Proceeds and amounts which, pursuant to the
provisions described below, are deemed to be Collateral Proceeds
shall, pending their application in accordance with this covenant or
the release thereof in accordance with the provisions described
under "- Possession, Use and Release of Collateral" and "- Use of
Trust Monies," be deposited in the Collateral Account under the
Indenture.
The term "Asset Sale," as defined in the Indenture, excludes
certain sales and other dispositions of assets, including, subject
to limited exceptions, sales of Revolving Credit Agreement
Collateral. See "- Certain Definitions." As a result, Cadiz, Sun
World and the Restricted Subsidiaries will be permitted to sell
certain assets without compliance with the foregoing covenant.
An Asset Sale Offer will remain open for a period of 20
Business Days following its commencement and no longer, except to
the extent that a longer period is required by applicable law (the
"Asset Sale Offer Period"). No later than five Business Days after
the termination of the Asset Sale Offer Period (the "Asset Sale
Purchase Date"), Sun World will purchase the principal amount of
Exchange Notes required to be purchased pursuant to this covenant
(the "Asset Sale Offer Amount") or, if less than the Asset Sale
Offer Amount has been tendered, all Exchange Notes tendered in
response to the Asset Sale Offer. Payment for any Exchange Notes so
purchased will be made in the same manner as interest payments are
made.
If the Asset Sale Purchase Date is on or after an interest
record date and on or before the related interest payment date, any
accrued and unpaid interest will be paid to the Person in whose name
a Note is registered at the close of business on such record date,
and no additional interest will be payable to Holders who tender
Exchange Notes pursuant to the Asset Sale Offer.
On or before the Asset Sale Purchase Date, Sun World will, to
the extent lawful, accept for payment, on a pro rata basis to the
extent necessary, the Asset Sale Offer Amount of Exchange Notes or
portions thereof tendered pursuant to the Asset Sale Offer, or if
less than the Asset Sale Offer Amount has been tendered, all
Exchange Notes tendered, and will deliver to the Trustee an
Officers' Certificate stating that such Exchange Notes or portions
thereof were accepted for payment by Sun World in accordance with
the terms of this covenant. Sun World, the Depository or the Paying
Agent, as the case may be, will promptly (but in any case not later
than five days after the Asset Sale Purchase Date) mail or deliver
to each tendering Holder an amount equal to the purchase price of
the Exchange Notes tendered by such Holder and accepted by Sun World
for purchase, and Sun World will promptly issue a new Note, and the
Trustee, upon written request from Sun World will authenticate and
mail or deliver such new Note to such Holder, in a principal amount
equal to any unpurchased portion of the Note surrendered. Any Note
not so accepted will be promptly mailed or delivered by Sun World to
the Holder thereof. Sun World will publicly announce the results of
the Asset Sale Offer on the Asset Sale Purchase Date.
LIMITATION ON RESTRICTED PAYMENTS
The Indenture provides that Cadiz and Sun World will not, and
will not permit any of the Restricted Subsidiaries to, directly or
indirectly: (i) declare or pay any dividend or make any other
payment or distribution on account of the Equity Interests of Cadiz,
Sun World or any of the Restricted Subsidiaries (including, without
limitation, any payment in connection with any merger or
consolidation involving Cadiz, Sun World or any of the Restricted
Subsidiaries) or to the direct or indirect holders of Equity
Interests in Cadiz, Sun World or any of the Restricted Subsidiaries
in their capacity as such (other than dividends or distributions
payable in Equity Interests (other than Disqualified Stock) of Sun
World); (ii) purchase, redeem or otherwise acquire or retire for
value (including without limitation, in connection with any merger
or consolidation involving Cadiz, Sun World or any of the Restricted
Subsidiaries) any Equity Interests of Cadiz, Sun World or any of the
Restricted Subsidiaries; (iii) make any payment on or with respect
to, or purchase, redeem, defease or otherwise acquire or retire for
value any Indebtedness of Sun World that is subordinated to the
Exchange Notes (other than Exchange Notes), any Indebtedness of
Cadiz that is subordinated to the Cadiz Guarantee or any
Indebtedness of a Subsidiary Guarantor that is subordinated to a
Subsidiary Guarantee except a payment of interest or principal at
Stated Maturity; provided, however, that Sun World or Cadiz may make
any such payment, purchase, redemption, defeasance or retirement for
value using the proceeds of Permitted Refinancing Indebtedness; or
(iv) make any Restricted Investment (all such payments and other
actions set forth in clauses (i) through (iv) above being
collectively referred to as "Restricted Payments").
PARENT RESTRICTED PAYMENTS. Notwithstanding the foregoing,
Cadiz will be permitted to make Restricted Payments if, at the time
of and after giving effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof; and
(b) Cadiz would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted
Payment had been made at the beginning of the applicable
four-quarter period, have been permitted to incur at least
$1.00 of additional Indebtedness pursuant to the Fixed Charge
Coverage Ratio test set forth in the second paragraph of the
covenant described below under the caption " -Incurrence of
Indebtedness and Issuance of Preferred Stock;" and
(c) such Restricted Payment, together with the aggregate
amount of all other Restricted Payments made by Cadiz after the
date of the Indenture, is less than the sum of (i) the lesser
of (x) 50% of the Net Income of Cadiz (not including any Net
Income of Sun World or any of its or Cadiz' Subsidiaries) for
the period (taken as one accounting period) from and after the
last day of the first fiscal quarter immediately following the
date of the Indenture to the end of Cadiz' most recently ended
fiscal quarter for which internal financial statements are
available at the time of such Restricted Payment (or, if such
Net Income for such period is a deficit, less 100% of such
deficit) or (y) 50% of Cadiz' Consolidated Net Income for the
period (taken as one accounting period) from and after the last
day of the first fiscal quarter immediately following the date
of the Indenture to the end of Cadiz' most recently ended
fiscal quarter for which internal financial statements are
available at the time of such Restricted Payment (or, if such
Consolidated Net Income for such period is a deficit, less 100%
of such deficit), plus (ii) 100% of the aggregate net cash
proceeds received by Cadiz from the issue or sale since the
date of the Indenture of Equity Interests of Cadiz (other than
Disqualified Stock) or of Disqualified Stock or debt securities
of Cadiz that have been converted into such Equity Interests
(other than Equity Interests or Disqualified Stock or
convertible debt securities sold to a Subsidiary of Cadiz),
plus (iii) to the extent that any Restricted Investment that
was made by Cadiz after the date of the Indenture is sold for
cash or otherwise liquidated or repaid for cash, the lesser of
(A) the cash return of capital with respect to such Restricted
Investment (less the cost of disposition, if any) and (B) the
initial amount of such Restricted Investment, plus (iv) $5.0
million.
ISSUER RESTRICTED PAYMENTS. Notwithstanding the foregoing, Sun
World will be permitted to make Restricted Payments if, at the time
of and after giving effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof; and
(b) Sun World would, at the time of such Restricted Payment
and after giving pro forma effect thereto as if such Restricted
Payment had been made at the beginning of the applicable
four-quarter period, have been permitted to incur at least
$1.00 of additional Indebtedness pursuant to the Fixed Charge
Coverage Ratio test set forth in the second paragraph of the
covenant described above under caption "- Incurrence of
Indebtedness and Issuance of Preferred Stock;" and
(c) (i) in the case of a Restricted Payment made to a Person
other than Cadiz, such Restricted Payment, together with the
aggregate amount of all other Restricted Payments made by Sun
World after the date of the Indenture, is less than the sum of
(A) the lesser of (x) 50% of the Consolidated Net Income of Sun
World (not including any Net Income of Cadiz) for the period
(taken as one accounting period) from and after the last day of
the first fiscal quarter immediately following the date of the
Indenture to the end of Sun World's most recently ended fiscal
quarter for which internal financial statements are available
at the time of such Restricted Payment (or, if such
Consolidated Net Income for such period is a deficit, less 100%
of such deficit) or (y) 50% of Cadiz' Consolidated Net Income
for the period (taken as one accounting period) from and after
the last day of the first fiscal quarter immediately following
the date of the Indenture to the end of Cadiz' most recently
ended fiscal quarter for which internal financial statements
are available at the time of such Restricted Payment (or, if
such Consolidated Net Income for such period is a deficit, less
100% of such deficit), plus (B) 100% of the aggregate net cash
proceeds received by Sun World from the issue or sale since the
date of the Indenture of Equity Interests of Sun World (other
than Disqualified Stock) or of Disqualified Stock or debt
securities of Sun World that have been converted into such
Equity Interests (other than Equity Interests or Disqualified
Stock or convertible debt securities sold to a Subsidiary of
Sun World), plus (C) to the extent that any Restricted
Investment that was made by Sun World or any of its Restricted
Subsidiaries after the date of the Indenture is sold for cash
or otherwise liquidated or repaid for cash, the lesser of
(A) the cash return of capital with respect to such Restricted
Investment (less the cost of disposition, if any) and (B) the
initial amount of such Restricted Investment, less (D) the
aggregate amount of all Restricted Payments made to Cadiz after
the date of the Indenture under subparagraph (ii) of this
paragraph (c);
(ii) in the case of a Restricted Payment made to Cadiz,
such Restricted Payment, together with the aggregate amount of
all other Restricted Payments made by Sun World and its
Restricted Subsidiaries after the date of the Indenture, is
less than the sum of (A) 50% of the Consolidated Net Income of
Sun World (not including any Net Income of Cadiz) for the
period (taken as one accounting period) from and after the last
day of the first fiscal quarter immediately following the date
of the Indenture to the end of Sun World's most recently ended
fiscal quarter for which internal financial statements are
available at the time of such Restricted Payment (or, if such
Consolidated Net Income for such period is a deficit, less 100%
of such deficit) plus (B) 100% of the aggregate net cash
proceeds received by Sun World from the issue or sale since the
date of the Indenture of Equity Interests of Sun World (other
than Disqualified Stock) or of Disqualified Stock or debt
securities of Sun World that have been converted into such
Equity Interests (other than Equity Interests or Disqualified
Stock or convertible debt securities sold to a Subsidiary of
Sun World) plus (C) to the extent that any Restricted
Investment that was made by Sun World or any of its Restricted
Subsidiaries after the date of the Indenture is sold for cash
or otherwise liquidated or repaid for cash, the lesser of
(A) the cash return of capital with respect to such Restricted
Investment (less the cost of disposition, if any) and (B) the
initial amount of such Restricted Investment, less (D) the
aggregate amount of all Restricted Payments made to Persons
other than Cadiz after the date of the Indenture under
subparagraph (i) of this paragraph (c).
The foregoing provisions will not prohibit (i) the payment of
any dividend within 60 days after the date of declaration thereof,
if at said date of declaration such payment would have complied with
the provisions of the Indenture; (ii) the redemption, repurchase,
retirement, defeasance or other acquisition of any subordinated
Indebtedness or Equity Interests of Sun World in exchange for, or
out of the net cash proceeds of the substantially concurrent sale
(other than to a Restricted Subsidiary of Sun World) of, other
Equity Interests of Cadiz or Sun World (other than any Disqualified
Stock); provided that the amount of any such net cash proceeds that
are utilized for any such redemption, repurchase, retirement,
defeasance or other acquisition shall be excluded from
clause (c)(i)(B) and (c)(ii)(B) of the preceding paragraph;
(iii) the defeasance, redemption, repurchase or other acquisition of
subordinated Indebtedness with the net cash proceeds from an
incurrence of Permitted Refinancing Indebtedness; (iv) the
repurchase, redemption or other acquisition or retirement for value
of any Equity Interests of Cadiz, Sun World or any Restricted
Subsidiary held by any member of the management of Cadiz, Sun World
or any Restricted Subsidiary upon such member's death, disability or
termination pursuant to any management equity subscription agreement
or stock option agreement in effect as of the date of the Indenture;
provided that the aggregate price paid for all such repurchased,
redeemed, acquired or retired Equity Interests shall not exceed
$1.0 million in any twelve-month period or $2.0 million in the
aggregate for all periods following the date of the Indenture and no
Default or Event of Default shall have occurred and be continuing
immediately after such transaction; (v) the payment of dividends by
Sun World to Cadiz that are used within 30 days of the date paid
solely to pay accounting, legal charges incurred in connection with
Cadiz' Securities and Exchange Commission reporting requirements and
other administrative expenses; provided that no Event of Default
shall have occurred and be continuing; and provided further, that
the aggregate amount of such dividends may not exceed $1.5 million
in any fiscal year; (vi) the payment of up to $2.0 million by Sun
World to Cadiz in any fiscal year; provided that (A) Sun World
would, at the time of such Restricted Payment and after giving pro
forma effect thereto as if such Restricted Payment had been made at
the beginning of the applicable four-quarter period, have been
permitted to incur at least $1.00 of additional Indebtedness
pursuant to the Fixed Charge Coverage Ratio test set forth in the
second paragraph of the covenant described above under the caption
"- Incurrence of Indebtedness and Issuance of Preferred Stock" and
(B) within 30 days of the receipt of such funds, Cadiz applies such
funds to the costs of a Qualified Project; provided further, that no
Event of Default shall have occurred and be continuing; and
(vii) the payment by Cadiz within 12 months of the Issue Date of
dividends on its Series A Preferred Stock in an aggregate amount not
to exceed $800,000 upon the mandatory conversion of such stock.
The Board of Directors of each Sun World and Cadiz may
designate any Restricted Subsidiary to be an Unrestricted Subsidiary
if such designation would not cause a Default. For purposes of
making such determination, all outstanding Investments by Sun World
and its Restricted Subsidiaries or by Cadiz (except to the extent
repaid in cash) in the Subsidiary so designated will be deemed to be
Restricted Payments at the time of such designation and will reduce
the amount available for Restricted Payments under the first
paragraph of this covenant. All such outstanding Investments will
be deemed to constitute Investments in an amount equal to the
greatest of (x) the net book value of such Investments at the time
of such designation, (y) the fair market value of such Investments
at the time of such designation and (z) the original fair market
value of such Investments at the time they were made. Such
designation will only be permitted if such Restricted Payment would
be permitted at such time and if such Restricted Subsidiary
otherwise meets the definition of an Unrestricted Subsidiary.
The amount of all Restricted Payments (other than cash) shall
be the fair market value on the date of the Restricted Payment of
the asset(s) or securities proposed to be transferred or issued by
Cadiz, Sun World or such Restricted Subsidiary, as the case may be,
pursuant to the Restricted Payment. The fair market value of any
non-cash Restricted Payment shall be determined by the Board of
Directors whose resolution with respect thereto shall be delivered
to the Trustee, such determination to be based upon an opinion or
appraisal issued by an accounting, appraisal or investment banking
firm of national standing if such fair market value exceeds
$1.0 million. Not later than the date of making any Restricted
Payment, Sun World shall deliver to the Trustee an Officers'
Certificate stating that such Restricted Payment is permitted and
setting forth the basis upon which the calculations required by the
covenant "Restricted Payments" were computed, together with a copy
of any fairness opinion or appraisal required by the Indenture.
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK
The Indenture provides that neither Cadiz nor Sun World will,
and neither Cadiz nor Sun World will permit any of its Subsidiaries
to, directly or indirectly, create, incur, issue, assume, guarantee
or otherwise become directly or indirectly liable, contingently or
otherwise, with respect to (collectively, "incur") any Indebtedness
(including Acquired Debt), that neither Cadiz nor Sun World will
issue any Disqualified Stock and that Issuer will not permit any of
its Subsidiaries to issue any shares of preferred stock.
Notwithstanding the foregoing, Cadiz and Sun World may incur
Indebtedness (including Acquired Debt) if the Fixed Charge Coverage
Ratio of Cadiz or Sun World, as the case may be, for its most
recently ended four full fiscal quarters for which internal
financial statements are available immediately preceding the date on
which such additional Indebtedness is incurred would have been at
least 2.0 to 1, determined on a pro forma basis (including a pro
forma application of the net proceeds therefrom), as if the
additional Indebtedness had been incurred at the beginning of such
four-quarter period.
PARENT PERMITTED DEBT. The provisions of the first paragraph
of this covenant will not apply to the incurrence by Cadiz of any of
the following items of Indebtedness:
(i) the incurrence by Cadiz of Existing Indebtedness;
(ii) the incurrence by Cadiz of Permitted Refinancing
Indebtedness;
(iii) the incurrence by Cadiz of Indebtedness represented
by the Cadiz Guarantee or the
Guarantee of the Revolving Credit Agreement;
(iv) the incurrence by Cadiz of Indebtedness under the
Cadiz Credit Agreement; provided that the aggregate principal
amount of all such Indebtedness, including all Permitted
Refinancing Indebtedness incurred to refund, refinance or
replace any other Indebtedness incurred pursuant to this
clause, does not exceed $50.0 million;
(v) the incurrence by Cadiz of Capital Lease Obligations
incurred for the purpose of financing all or any part of the
cost of construction or improvement of property, plant or
equipment used in the Permitted Businesses of Cadiz in an
aggregate principal amount not to exceed $2.5 million at any
time outstanding;
(vi) the incurrence by Cadiz of Non-Recourse Debt to
finance a Qualified Project;
(vii) the incurrence by Cadiz of Purchase Money
Indebtedness in connection with the purchase of assets to be
used in Permitted Businesses of Cadiz; and
(viii) the incurrence by Cadiz of up to $5.0 million
aggregate amount of Indebtedness for any purpose.
ISSUER PERMITTED DEBT. The provisions of the first paragraph
of this covenant will not apply to the incurrence of any of the
following items of Indebtedness:
(i) the incurrence by Sun World and its Subsidiaries of
Existing Indebtedness;
(ii) the incurrence by Sun World of Permitted Refinancing
Indebtedness;
(iii) the incurrence by Sun World of Indebtedness
represented by the Exchange Notes and the incurrence by the
Subsidiary Guarantors of the Subsidiary Guarantees;
(iv) the incurrence by Sun World or any of Sun World's
Wholly Owned Restricted Subsidiaries of intercompany
Indebtedness between or among Sun World and any of its Wholly
Owned Restricted Subsidiaries; provided, however, that (A) such
Indebtedness is expressly subordinated to the prior payment in
full in cash of all Obligations with respect to the Exchange
Notes and the Subsidiary Guarantees and (B)(1) any subsequent
issuance or transfer of Equity Interests that results in any
such Indebtedness being held by a Person other than Sun World
or a Wholly Owned Restricted Subsidiary and (2) any sale or
other transfer of any such Indebtedness to a Person that is not
either Sun World or a Wholly Owned Restricted Subsidiary shall
be deemed, in each case, to constitute an incurrence of such
Indebtedness by Sun World or such Restricted Subsidiary, as the
case may be;
(v) the incurrence by Sun World's Unrestricted
Subsidiaries of Non-Recourse Debt; provided, however, that if
any such Indebtedness ceases to be Non-Recourse Debt of an
Unrestricted Subsidiary, such event shall be deemed to
constitute an incurrence of Indebtedness by a Restricted
Subsidiary of Sun World;
(vi) the incurrence by Sun World of Revolving
Indebtedness; provided that the aggregate principal amount of
all such Indebtedness, including all Permitted Refinancing
Indebtedness incurred to refund, refinance or replace any other
Indebtedness incurred pursuant to this clause, does not exceed
$30.0 million; and, provided further, that for a period of 30
consecutive days during the 12 months preceding such
incurrence, Sun World had outstanding no Revolving
Indebtedness;
(vii) the incurrence by Sun World or any of its Restricted
Subsidiaries of Capital Lease Obligations incurred for the
purpose of financing all or any part of the cost of
construction or improvement of property, plant or equipment
used in a Permitted Business of Sun World or such Restricted
Subsidiary, in an aggregate principal amount not to exceed
$2.5 million at any time outstanding;
(viii) the incurrence by Sun World or any of its Restricted
Subsidiaries of Purchase Money Indebtedness to acquire land or
agricultural equipment from a Person who is not an Affiliate of
Sun World of up to $10.0 million each fiscal year, not to
exceed $30.0 million in the aggregate; or
(ix) the incurrence by Sun World or any of its Restricted
Subsidiaries of up to $5.0 million aggregate amount of
Indebtedness to finance the development, maintenance or
expansion of activities or properties related to Permitted
Businesses existing as of the date of the Indenture.
For purposes of determining compliance with this covenant, in
the event that an item of Indebtedness meets the criteria of more
than one of the categories set forth in the two immediately
preceding paragraphs or is entitled to be incurred pursuant to the
second paragraph of this covenant, Sun World shall, in its sole
discretion, classify such item of Indebtedness in any manner that
complies with this covenant and such item of Indebtedness will be
treated as having been incurred pursuant to only one of such clauses
or pursuant to the second paragraph hereof. Accrual of interest and
the accretion of accreted value will not be deemed to be an
incurrence of Indebtedness for purposes of this covenant.
LIENS
The Indenture provides that Cadiz and Issuer will not, and
neither Cadiz nor Sun World will permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, assume or
suffer to exist any Lien on any asset now owned or hereafter
acquired, or any income or profits therefrom or assign or convey any
right to receive income therefrom, except Permitted Liens.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
The Indenture provides that Sun World will not, and will not
permit any of its Restricted Subsidiaries to, directly or
indirectly, create or otherwise cause or suffer to exist or become
effective any encumbrance or restriction on the ability of any
Restricted Subsidiary to (i)(a) pay dividends or make any other
distributions to Sun World or any of its Restricted Subsidiaries
(1) on its Capital Stock or (2) with respect to any other interest
or participation in, or measured by, its profits, or (b) pay any
indebtedness owed to Sun World or any of its Restricted
Subsidiaries, (ii) make loans or advances to Sun World or any of its
Restricted Subsidiaries or (iii) transfer any of its properties or
assets to Sun World or any of its Restricted Subsidiaries, except
for such encumbrances or restrictions existing under or by reason of
(a) Existing Indebtedness as in effect on the date of the Indenture,
and any amendments, modifications, restatements, renewals,
increases, supplements, refundings, replacements or refinancings
thereof; provided that such amendments, modifications, restatements,
renewals, increases, supplements, refundings, replacement or
refinancings are no more restrictive with respect to such dividend
and other payment restrictions than those contained in the Revolving
Credit Agreement as in effect on the date of the Indenture, (b) the
Indenture and the Exchange Notes, (c) applicable law, (d) any
instrument governing Indebtedness or Capital Stock of a Person
acquired by Sun World or any of its Restricted Subsidiaries as in
effect at the time of such acquisition (except to the extent such
Indebtedness was incurred in connection with or in contemplation of
such acquisition), which encumbrance or restriction is not
applicable to any Person, or the properties or assets of any Person,
other than the Person, or the property or assets of the Person, so
acquired; provided that, in the case of Indebtedness, such
Indebtedness was permitted by the terms of the Indenture to be
incurred, (e) by reason of customary non-assignment provisions in
leases entered into in the ordinary course of business and
consistent with past practices, (f) purchase money obligations for
property acquired in the ordinary course of business that impose
restrictions of the nature described in clause (iii) above on the
property so acquired, or (g) Permitted Refinancing Indebtedness;
provided that the restrictions contained in the agreements governing
such Permitted Refinancing Indebtedness are no more restrictive than
those contained in the agreements governing the Indebtedness being
refinanced.
TRANSACTIONS WITH AFFILIATES
The Indenture provides that neither Cadiz nor Sun World will
and neither will permit any of its Restricted Subsidiaries to, make
any payment to, or sell, lease, transfer or otherwise dispose of any
of its properties or assets to, or purchase any property or assets
from, or enter into or make or amend any transaction, contract,
agreement, understanding, loan, advance or guarantee with, or for
the benefit of, any Affiliate (each of the foregoing, an "Affiliate
Transaction"), unless (i) such Affiliate Transaction is on terms
that are no less favorable to Cadiz, Sun World or the relevant
Restricted Subsidiary than those that would have been obtained in a
comparable transaction by Cadiz, Sun World or such Restricted
Subsidiary with an unrelated Person and (ii) Cadiz or Sun World as
applicable, delivers to the Trustee (a) with respect to any
Affiliate Transaction or series of related Affiliate Transactions
involving aggregate consideration in excess of $1.0 million, a
resolution of the Board of Directors set forth in an Officers'
Certificate certifying that such Affiliate Transaction complies with
clause (i) above and that such Affiliate Transaction has been
approved by a majority of the disinterested members of the Board of
Directors and (b) with respect to any Affiliate Transaction or
series of related Affiliate Transactions involving aggregate
consideration in excess of $5.0 million, an opinion as to the
fairness to the Holders of such Affiliate Transaction from a
financial point of view issued by an accounting, appraisal or
investment banking firm of national standing; provided that (w) any
employment agreement entered into by Cadiz, Sun World or any of
their Restricted Subsidiaries in the ordinary course of business and
consistent with the past practice of Cadiz, Sun World or such
Restricted Subsidiary, (x) transactions between or among Sun World
and/or its Restricted Subsidiaries, (y) Restricted Payments that are
permitted by the provisions of the Indenture described above under
the caption " -Restricted Payments," shall not be deemed Affiliate
Transactions.
ADDITIONAL SUBSIDIARY GUARANTEES
The Indenture provides that Cadiz will not create any
Subsidiaries or own Capital Stock in any corporation other than Sun
World, PSWR I, Southwest Fruit Growers, L.P., Pacific Packing, Inc.,
Pacific Real Estate, Inc. and Rancho Cadiz Mutual Water Company.
After the date of the Indenture, Cadiz will take all necessary
action to dissolve PSWR I, Pacific Packing, Inc. and Pacific Real
Estate, Inc. In addition, Sun World will not, and will not permit
any of the Subsidiary Guarantors to, acquire or otherwise make any
Investment in any Subsidiary that is not a Subsidiary Guarantor
unless either (i) such Investment is permitted by the covenant
entitled "Restricted Payments," or (ii) such Subsidiary executes a
Subsidiary Guarantee, enters into the Collateral Documents and
delivers an opinion of counsel in accordance with the provisions of
the Indenture.
MERGER, CONSOLIDATION, OR SALE OF ASSETS
The Indenture provides that Sun World may not consolidate or
merge with or into (whether or not Sun World is the surviving
corporation), or sell, assign, transfer, lease, convey or otherwise
dispose of all or substantially all of its properties or assets in
one or more related transactions, to another corporation, Person or
entity unless: (i) Sun World is the surviving corporation or the
entity or the Person formed by or surviving any such consolidation
or merger (if other than Sun World) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall
have been made (such surviving corporation or transferee Person, the
"Surviving Entity") is a corporation organized or existing under the
laws of the United States, any state thereof or the District of
Columbia; (ii) the Surviving Entity assumes all the obligations of
Sun World under the Exchange Notes, the Indenture and the Collateral
Documents pursuant to a supplemental indenture and other documents
in form reasonably satisfactory to the Trustee; (iii) the Surviving
Entity causes such amendments, supplements or other instruments to
be filed and recorded in such jurisdictions as may be required by
applicable law to preserve and protect the Lien of the Collateral
Documents on the Collateral owned by or transferred to the Surviving
Entity, together with such financing statements as may be required
to perfect any security interests in such Collateral which may be
perfected by the filing of a financing statement under the Uniform
Commercial Code of the relevant states); (iv) the Collateral owned
by or transferred to the Surviving Entity shall (1) continue to
constitute Collateral under the Indenture and the Collateral
Documents, (2) shall be subject to the Lien in favor of the Trustee
for the benefit of the holders of the Exchange Notes and (3) shall
not be subject to any Lien other than Liens expressly permitted by
the Indenture and the Collateral Documents; (v) the property and
assets of the person which is merged or consolidated with or into
such company, to the extent that they are property or assets of the
types which would constitute Collateral under the Collateral
Documents shall be treated as After-Acquired Property and the
Surviving Entity shall take such action as may be necessary to cause
such property and assets to be made subject to the Lien of the
Collateral Documents in the manner and to the extent required by the
Indenture; (vi) immediately after such transaction no Default or
Event of Default exists; and (vii) except in the case of a merger of
Sun World with or into a Wholly Owned Subsidiary of Sun World, the
Surviving Entity (A) will have Consolidated Net Worth immediately
after the transaction equal to or greater than the Consolidated Net
Worth of Sun World immediately preceding the transaction and
(B) will, at the time of such transaction and after giving pro forma
effect thereto as if such transaction had occurred at the beginning
of the applicable four-quarter period, be permitted to incur at
least $1.00 of additional Indebtedness pursuant to the Fixed Charge
Coverage Ratio test set forth in the second paragraph of the
covenant described above under the caption "- Incurrence of
Indebtedness and Issuance of Preferred Stock."
SALE AND LEASEBACK TRANSACTIONS
The Indenture provides that Cadiz and Sun World will not, and
neither Cadiz nor Sun World will permit any of its Restricted
Subsidiaries to, enter into any sale and leaseback transaction;
provided that Cadiz or Sun World may enter into a sale and leaseback
transaction if (i) Cadiz or Sun World could have (a) incurred
Indebtedness in an amount equal to the Attributable Debt relating to
such sale and leaseback transaction pursuant to the Fixed Charge
Coverage Ratio test set forth in the second paragraph of the
covenant described above under the caption " -Incurrence of
Additional Indebtedness and Issuance of Preferred Stock" and
(b) incurred a Lien to secure such Indebtedness pursuant to the
covenant described above under the caption " -Liens," (ii) the gross
cash proceeds of such sale and leaseback transaction are at least
equal to the fair market value (as determined in good faith by the
Board of Directors and set forth in an Officers' Certificate
delivered to the Trustee) of the property that is the subject of
such sale and leaseback transaction and (iii) the transfer of assets
in such sale and leaseback transaction is permitted by, and Cadiz or
Sun World applies the proceeds of such transaction in compliance
with, the covenant described above under the caption " -Asset
Sales."
LIMITATION ON ISSUANCES AND SALES OF CAPITAL STOCK OF WHOLLY OWNED
SUBSIDIARIES
The Indenture provides that Cadiz and Sun World (i) will not,
and will not permit any Wholly Owned Subsidiary to, transfer,
convey, sell, lease or otherwise dispose of any Capital Stock of any
Wholly Owned Subsidiary to any Person (other than Cadiz, Sun World
or a Wholly Owned Subsidiary of Cadiz or Sun World), unless (a) such
transfer, conveyance, sale, lease or other disposition is of all the
Capital Stock of such Wholly Owned Subsidiary and (b) the cash Net
Proceeds from such transfer, conveyance, sale, lease or other
disposition are applied in accordance with the covenant described
above under the caption " -Asset Sales," and (ii) will not permit
any Wholly Owned Subsidiary to issue any of its Equity Interests
(other than, if necessary, shares of its Capital Stock constituting
directors' qualifying shares) to any Person other than to Cadiz, Sun
World or a Wholly Owned Subsidiary of Cadiz or Sun World.
BUSINESS ACTIVITIES
Cadiz and Sun World will not, and will not permit any
Restricted Subsidiary to, engage in any business other than
Permitted Businesses, except to such extent as would not be material
to Sun World and its Subsidiaries taken as a whole.
ADVANCES
The Indenture will provide that all advances to Restricted
Subsidiaries made by Cadiz or Sun World from time to time after the
date of the Indenture will be evidenced by unsecured Subsidiary
Intercompany Exchange Notes in favor of Cadiz or Sun World,
respectively, that will be pledged to the Trustee pursuant to the
applicable Collateral Documents as Collateral to secure the Exchange
Notes. The Indenture will also provide that all advances by Sun
World to any Restricted Subsidiary outstanding on the date of the
Indenture will be evidenced by an unsecured Subsidiary Intercompany
Note that will be pledged to the Trustee pursuant to the applicable
Collateral Documents as Collateral for the Exchange Notes. Each
Subsidiary Intercompany Note will be payable upon demand and will
bear interest at the same rate as the Exchange Notes.
IMPAIRMENT OF SECURITY INTERESTS
The Indenture provides that Cadiz and Sun World will not, and
neither Cadiz nor Sun World will permit any of its Restricted
Subsidiaries to, take or omit to take any action which action or
omission could reasonably be expected to have the result of
adversely affecting or impairing the Lien in favor of the Trustee
for the benefit of the holders of the Notes, in the Collateral. The
Indenture will further provide that Cadiz and Sun World will not,
and neither Cadiz nor Sun World will permit any of its Restricted
Subsidiaries to, grant to any person (other than the Trustee for the
benefit of the holders of the Notes) any interest whatsoever in the
Collateral except as expressly permitted by the Indenture and the
Collateral Documents.
PAYMENTS FOR CONSENT
The Indenture provides that neither Cadiz, Sun World nor any of
the Subsidiaries will, directly or indirectly, pay or cause to be
paid any consideration, whether by way of interest, fee or
otherwise, to any Holder of any Notes for or as an inducement to any
consent, waiver or amendment of any of the terms or provisions of
the Indenture or the Notes unless such consideration is offered to
be paid or is paid to all Holders of the Notes that consent, waive
or agree to amend in the time frame set forth in the solicitation
documents relating to such consent, waiver or agreement.
REPORTS
The Indenture provides that, whether or not required by the
rules and regulations of the Commission, so long as any Exchange Notes
are outstanding, Cadiz will furnish to the Holders of Notes (i) all
quarterly and annual financial information that would be required to
be contained in a filing with the Commission on Forms 10-Q and 10-K
if Cadiz is required to file such Forms, including a "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" that describes the financial condition and results of
operations of Cadiz and Cadiz' consolidated Subsidiaries and, with
respect to the annual information only, a report thereon by the
certified independent accountants for Cadiz and (ii) all current
reports that would be required to be filed with the Commission on
Form 8-K if Cadiz were required to file such reports. In addition,
whether or not required by the rules and regulations of the Commission,
Cadiz will file a copy of all such information and reports with the
Commission for public availability (unless the Commission will not
accept such a filing) and make such information available to securities
analysts and prospective investors upon request.
In addition, Cadiz and Sun World have agreed that, for so long
as any Notes remain outstanding, they will furnish to the Holders
and to securities analysts and prospective investors, upon their
request, the information required to be delivered pursuant to
Rule 144A(d)(4) under the Securities Act.
The Indenture provides that, whether or not required by the
rules and regulations of the Commission, so long as any Notes are
outstanding, Sun World will furnish to the Holders of Notes
(i) quarterly and annual financial information including statements
of operations, statements of cash flows and balance sheets of Sun
World and its Restricted Subsidiaries separate from the financial
condition and results of operations of Cadiz and of the Unrestricted
Subsidiaries of Sun World and, with respect to the annual
information only, a report thereon by the certified independent
accountants for Sun World and (ii) all current reports that would be
required to be filed with the Commission on Form 8-K if Sun World
were required to file such reports.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes
an Event of Default: (i) default for 30 days in the payment when
due of interest on, the Notes; (ii) default in payment when due of
the principal of or premium, if any, on the Notes; (iii) failure by
Cadiz or Sun World to comply with the provisions described under the
captions "- Change of Control," "- Asset Sales," " -Limitation on
Restricted Payments," "- Incurrence of Indebtedness and Issuance of
Preferred Stock" and " -Merger, Consolidation, or Sale of Assets;"
(iv) failure by Cadiz, Sun World or any Subsidiary Guarantor for
30 days after notice to comply with any of its other agreements in
the Indenture, the Notes, the Guarantees or in any of the Collateral
Documents; (v) default under any mortgage, indenture or instrument
under which there may be issued or by which there may be secured or
evidenced any Indebtedness for money borrowed by Sun World or any of
its Subsidiaries (or the payment of which is guaranteed by Sun World
or any of its Subsidiaries) whether such Indebtedness or guarantee
now exists, or is created after the date of the Indenture, which
default results in the acceleration of such Indebtedness prior to
its express maturity and, in each case, the principal amount of any
such Indebtedness, together with the principal amount of any other
such Indebtedness or the maturity of which has been so accelerated,
aggregates $5.0 million or more; (vi) failure by Cadiz, Sun World or
any of the Subsidiaries to pay final judgments aggregating in excess
of $5.0 million, which judgments are not paid, discharged or stayed
for a period of 60 days; (vii) except as permitted by the Indenture,
the Cadiz Guarantee or a Subsidiary Guarantee shall be held in any
judicial proceeding to be unenforceable or invalid or shall cease
for any reason to be in full force and effect or Cadiz or any
Subsidiary Guarantor, or any Person acting on behalf of Cadiz or any
such Subsidiary Guarantor, shall deny or disaffirm its obligations
under its Guarantee; (viii) any of the Collateral Documents shall be
held in any judicial proceeding to be unenforceable or invalid or
shall cease for any reason to be in full force and effect or any
Person which is a party to any of the Collateral Documents, or any
Person acting on behalf of such Person, shall deny or disaffirm its
obligations under any of such Collateral Documents; (ix) Cadiz or
Sun World shall breach any material representation, warranty or
agreement set forth in the Collateral Documents or any Collateral
Document shall be held in any judicial proceeding to be
unenforceable or invalid or shall cease for any reason to be in full
force and effect; and (x) certain events of bankruptcy or insolvency
with respect to Cadiz, Sun World or any Significant Subsidiary or
any group of Subsidiaries that, taken together, would constitute a
Significant Subsidiary.
If any Event of Default occurs and is continuing, the Trustee
or the Holders of at least 25% in principal amount of the then
outstanding Notes may declare all the Notes to be due and payable
immediately. Notwithstanding the foregoing, in the case of an Event
of Default arising from certain events of bankruptcy or insolvency,
with respect to Cadiz, Sun World, any Significant Subsidiary or any
group of Subsidiaries that, taken together, would constitute a
Significant Subsidiary, all outstanding Notes will become due and
payable without further action or notice. Holders of the Notes may
not enforce the Indenture or the Notes except as provided in the
Indenture. Subject to certain limitations, Holders of a majority in
principal amount of the then outstanding Notes may direct the
Trustee in its exercise of any trust or power. The Trustee may
withhold from Holders of the Notes notice of any continuing Default
or Event of Default (except a Default or Event of Default relating
to the payment of principal or interest) if it determines that
withholding notice is in their interest. Notwithstanding any
provision of the Indenture, the right of any holder of a Note to
receive payment of principal, premium and Liquidated Damages, if
any, and interest on the Note, on or after the respective due dates
expressed in the Note (including in connection with an offer to
purchase), or to bring suit for the enforcement of any such payment
on or after such respective dates, shall not be impaired or affected
without the consent of such Holder.
In the case of any Event of Default occurring by reason of any
willful action (or inaction) taken (or not taken) by or on behalf of
Sun World with the intention of avoiding payment of the premium that
Sun World would have had to pay if Sun World then had elected to
redeem the Notes pursuant to the optional redemption provisions of
the Indenture, an equivalent premium shall also become and be
immediately due and payable to the extent permitted by law upon the
acceleration of the Notes. If an Event of Default occurs prior to
April 15, 2001 by reason of any willful action (or inaction) taken
(or not taken) by or on behalf of Sun World with the intention of
avoiding the prohibition on redemption of the Notes prior to
April 15, 2001, then the premium specified in the Indenture shall
also become immediately due and payable to the extent permitted by
law upon the acceleration of the Notes.
The Holders of a majority in aggregate principal amount of the
Notes then outstanding by notice to the Trustee may on behalf of the
Holders of all of the Notes waive any existing Default or Event of
Default and its consequences under the Indenture, the Notes, the
Guarantees and the Collateral Documents except a continuing Default
or Event of Default in the payment of interest on, or the principal
of, the Notes.
Sun World is required to deliver to the Trustee annually a
statement regarding compliance with the Indenture, and Sun World is
required upon becoming aware of any Default or Event of Default, to
deliver to the Trustee a statement specifying such Default or Event
of Default.
POSSESSION, USE AND RELEASE OF COLLATERAL
Subject to and in accordance with the provisions of the
Collateral Documents and the Indenture, so long as no Event of
Default shall have occurred and be continuing, Sun World and the
Guarantors will have the right to remain in possession and retain
exclusive control of the Collateral, to operate the Collateral, to
alter or repair the Collateral and to collect, invest and dispose of
any income thereon.
RELEASE OF COLLATERAL. Upon compliance by Sun World with the
conditions set forth below in respect of any Asset Sale, the Trustee
will release the Released Interests (as defined below) from the Lien
of the relevant Collateral Document and reconvey the Released
Interests to Sun World or the relevant Guarantor, as the case may
be. Cadiz, Sun World and the Subsidiary Guarantors, as the case may
be, will have the right to obtain a release of items of Collateral
(the "Released Interests") subject to an Asset Sale upon compliance
with the condition that Sun World deliver to the Trustee the
following:
(a) A notice from Sun World requesting the release of
Released Interests, (i) specifically describing the proposed
Released Interests, (ii) specifying the Fair Market Value of
such Released Interests on a date within 60 days of such notice
(the "Valuation Date"), (iii) stating that the consideration to
be received is at least equal to the Fair Market Value of the
Released Interests, (iv) stating that the release of such
Released Interests will not impair the value of the remaining
Collateral or interfere with the Trustee's ability to realize
such value and will not impair the maintenance and operation of
the remaining Collateral, (v) confirming the sale of, or an
agreement to sell, such Released Interests in a bona fide sale
to a person that is not an Affiliate of Sun World or, in the
event that such sale is to a person that is an Affiliate,
confirming that such sale is made in compliance with the
provisions set forth in " -Certain Covenants Affiliate
Transactions," (vi) certifying that such Asset Sale complies
with the terms and conditions of the Indenture with respect
thereto, including, without limitation, the provisions set
forth in " -Certain Covenants -Asset Sales," and (vii) in the
event there is to be a substitution of property for the
Collateral subject to the Asset Sale, specifying the property
intended to be substituted for the Collateral to be disposed
of;
(b) An officers' certificate of Sun World stating that
(i) such sale covers only the Released Interests (or other
property which is not Collateral) and complies with the terms
and conditions of the Indenture with respect to Asset Sales,
(ii) all Collateral Proceeds (including amounts deemed to be
Collateral Proceeds) from the sale of any of the Released
Interests will be deposited in the Collateral Account, and all
Net Proceeds from the sale of any of the Released Interests
(and any other property which is not Collateral) will be
applied pursuant to the provision of the Indenture in respect
of Asset Sales, (iii) there is no Default or Event of Default
in effect or continuing on the date thereof, the Valuation Date
or the date of such Asset Sale, (iv) the release of the
Collateral will not result in a Default or Event of Default
under the Indenture, and (v) all conditions precedent in the
Indenture relating to the release in question have been
complied with; and
(c) All documentation required by the Trustee Indenture
Act of 1939, as amended, if any, prior to the release of
Collateral by the Trustee and, in the event that there is to be
a substitution of property for the Collateral subject to the
Asset Sale, all documentation necessary to effect the
substitution of such new Collateral and to subject such new
Collateral to the Lien of the relevant Collateral Documents.
The Indenture provides that Sun World also shall be entitled,
subject to compliance with the conditions set forth therein, to
obtain the release of Collateral which has been taken by eminent
domain, condemnation or in similar circumstances.
The Indenture provides that Sun World shall be entitled to
obtain a full release of all of the Collateral following legal
defeasance or covenant defeasance of the Indenture as described
above under "- Legal Defeasance and Covenant Defeasance."
The Indenture provides that, upon the release of any Subsidiary
Guarantor from its obligations under the Indenture and its
Subsidiary Guarantee as described in the last paragraph under the
heading "- Guarantees," such Subsidiary Guarantor shall be entitled
to obtain the release of all of its Collateral.
DISPOSITION OF COLLATERAL WITHOUT RELEASE. The Indenture
allows for the disposition of Collateral without release or consent
by the Trustee under limited circumstances in which the overall
value of the Collateral will not be materially adversely affected.
Specifically, notwithstanding the provisions of " -Release of
Collateral" above, so long as no Default or Event of Default shall
have occurred and be continuing or would result therefrom, Cadiz,
Sun World and the Subsidiary Guarantors may, among other things,
without any release or consent by the Trustee, conduct ordinary
course activities with respect to Collateral, including selling or
otherwise disposing of, in any transaction or series of related
transactions, any property subject to the Lien of the Collateral
Documents which has become worn out, obsolete or which is no longer
necessary for the conduct of the business of such Person and which
either has an aggregate Fair Market Value of $100,000 or less, or
which is replaced by property of substantially equivalent or greater
value which becomes subject to the Lien of the Collateral Documents
as After-Acquired Property; abandoning, terminating, canceling,
releasing or making alterations in or substitutions of any leases or
contracts subject to the Lien of the Indenture or any of the
Collateral Documents; surrendering or modifying any franchise,
license or permit subject to the Lien of the Indenture or any of the
Collateral Documents which it may own or under which it may be
operating; altering, repairing, replacing, changing the location or
position of and adding to its structures, machinery, systems,
equipment, fixtures and appurtenances; demolishing, dismantling,
tearing down, scrapping or abandoning any Collateral if, in the good
faith opinion of the Board of Directors of Sun World, such
demolition, dismantling, tearing down, scrapping or abandonment is
in the best interest of Sun World; granting a nonexclusive license
of any proprietary product; and abandoning any proprietary product
which has become obsolete and not used in the business.
USE OF TRUST MONIES
All Trust Monies (including, without limitation, all Collateral
Proceeds and Net Insurance Proceeds required to be deposited with
the Trustee) shall be held by the Trustee as a part of the
Collateral securing the Notes and, so long as no Event of Default
shall have occurred and be continuing, may either (i) be released as
contemplated by " -Certain Covenants -Asset Sales" if such Trust
Monies represent Collateral Proceeds in respect of an Asset Sale or
(ii) at the direction of Sun World be applied by the Trustee from
time to time to the payment of the principal of, premium, if any,
and interest on any Notes at Stated Maturity or upon redemption or
retirement, or to the purchase of Notes upon tender or in the open
market or otherwise, in each case in compliance with the Indenture.
The Sun World may also withdraw Trust Monies constituting Net
Insurance Proceeds to repair or replace the relevant Collateral,
subject to certain conditions set forth in the Indenture.
The Trustee shall be entitled to apply any Trust Monies to cure
any Event of Default. Trust Monies deposited with the Trustee shall
be invested in Cash Equivalents pursuant to the direction of Sun
World and, so long as no Default or Event of Default shall have
occurred and be continuing, Sun World shall be entitled to any
interest or dividends accrued, earned or paid on such Cash
Equivalents.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND
STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of
Sun World, as such, shall have any liability for any obligations of
Sun World under the Notes, the Indenture, or for any claim based on,
in respect of, or by reason of, such obligations or their creation.
Each Holder of Notes by accepting a Exchange Note waives and
releases all such liability. The waiver and release are part of the
consideration for issuance of the Notes. Such waiver may not be
effective to waive liabilities under the federal securities laws and
it is the view of the Commission that such a waiver is against
public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Sun World may, at its option and at any time, elect to have all
of its obligations discharged with respect to the outstanding Notes
("Legal Defeasance") except for (i) the rights of Holders of
outstanding Notes to receive payments in respect of the principal
of, premium, if any, and interest and Liquidated Damages on such
Notes when such payments are due from the trust referred to below,
(ii) Sun World's obligations with respect to the Notes concerning
issuing temporary Notes, registration of Notes, mutilated,
destroyed, lost or stolen Notes and the maintenance of an office or
agency for payment and money for security payments held in trust,
(iii) the rights, powers, trusts, duties and immunities of the
Trustee, and Sun World's obligations in connection therewith and
(iv) the Legal Defeasance provisions of the Indenture. In addition,
Sun World may, at its option and at any time, elect to have the
obligations of Sun World released with respect to certain covenants
that are described in the Indenture ("Covenant Defeasance") and
thereafter any omission to comply with such obligations shall not
constitute a Default or Event of Default with respect to the Notes.
In the event Covenant Defeasance occurs, certain events (not
including non-payment, bankruptcy, receivership, rehabilitation and
insolvency events) described under " -Events of Default" will no
longer constitute an Event of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant
Defeasance, (i) Sun World must irrevocably deposit with the Trustee,
in trust, for the benefit of the Holders of the Notes, cash in
U.S. dollars, non-callable Government Securities, or a combination
thereof, in such amounts as will be sufficient, in the opinion of a
nationally recognized firm of independent public accountants, to pay
the principal of, premium, if any, and interest and Liquidated
Damages on the outstanding Notes on the stated maturity or on the
applicable redemption date, as the case may be, and Sun World must
specify whether the Notes are being defeased to maturity or to a
particular redemption date; (ii) in the case of Legal Defeasance,
Sun World shall have delivered to the Trustee an opinion of counsel
in the United States reasonably acceptable to the Trustee confirming
that (A) Sun World has received from, or there has been published
by, the Internal Revenue Service a ruling or (B) since the date of
the Indenture, there has been a change in the applicable federal
income tax law, in either case to the effect that, and based thereon
such opinion of counsel shall confirm that, the Holders of the
outstanding Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such Legal Defeasance and
will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if
such Legal Defeasance had not occurred; (iii) in the case of
Covenant Defeasance, Sun World shall have delivered to the Trustee
an opinion of counsel in the United States reasonably acceptable to
the Trustee confirming that the Holders of the outstanding Notes
will not recognize income, gain or loss for federal income tax
purposes as a result of such Covenant Defeasance and will be subject
to federal income tax on the same amounts, in the same manner and at
the same times as would have been the case if such Covenant
Defeasance had not occurred; (iv) no Default or Event of Default
shall have occurred and be continuing on the date of such deposit
(other than a Default or Event of Default resulting from the
borrowing of funds to be applied to such deposit) or insofar as
Events of Default from bankruptcy or insolvency events are
concerned, at any time in the period ending on the 91st day after
the date of deposit; (v) such Legal Defeasance or Covenant
Defeasance will not result in a breach or violation of, or
constitute a default under any material agreement or instrument
(other than the Indenture) to which Sun World or any of its
Subsidiaries is a party or by which Sun World or any of its
Subsidiaries is bound; (vi) Sun World must have delivered to the
Trustee an opinion of counsel to the effect that after the 91st day
following the deposit, the trust funds will not be subject to the
effect of any applicable bankruptcy, insolvency, reorganization or
similar laws affecting creditors' rights generally; (vii) Sun World
must deliver to the Trustee an Officers' Certificate stating that
the deposit was not made by Sun World with the intent of preferring
the Holders of Notes over the other creditors of Sun World with the
intent of defeating, hindering, delaying or defrauding creditors of
Sun World or others; and (viii) Sun World must deliver to the
Trustee an Officers' Certificate and an opinion of counsel, each
stating that all conditions precedent provided for relating to the
Legal Defeasance or the Covenant Defeasance have been complied with.
TRANSFER AND EXCHANGE
A Holder may transfer Notes in accordance with the Indenture.
The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents
and Sun World may require a Holder to pay any taxes and fees
required by law or permitted by the Indenture. The Sun World is not
required to transfer or exchange any Note selected for redemption.
Also, Sun World is not required to transfer or exchange any Note for
a period of 15 days before a selection of Notes to be redeemed.
The registered Holder of a Note will be treated as the owner of
it for all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the
Indenture, the Notes, the Guarantees and the Collateral Documents
may be amended or supplemented with the consent of the Holders of at
least a majority in principal amount of the Notes then outstanding
(including, without limitation, consents obtained in connection with
a purchase of, or tender offer or exchange offer for, Notes), and
any existing default or compliance with any provision of the
Indenture, the Notes, the Guarantees and the Collateral Documents
may be waived with the consent of the Holders of a majority in
principal amount of the then outstanding Notes (including consents
obtained in connection with a tender offer or exchange offer for
Notes).
Without the consent of each Holder affected, an amendment or
waiver may not (with respect to any Notes held by a non-consenting
Holder): (i) reduce the principal amount of Notes whose Holders
must consent to an amendment, supplement or waiver of the Indenture,
Notes, Guarantees or Collateral Documents, (ii) reduce the principal
of or change the fixed maturity of any Note or alter the provisions
with respect to the redemption of the Notes (which redemption
provisions do not include the provisions described under "Certain
Covenants -Change of Control" or "Certain Covenants Asset Sales"),
(iii) reduce the rate of or change the time for payment of interest
on any Note, (iv) waive a Default or Event of Default in the payment
of principal of or premium, if any, or interest on the Notes (except
a rescission of acceleration of the Notes by the Holders of at least
a majority in aggregate principal amount of the Notes and a waiver
of the payment default that resulted from such acceleration),
(v) make any Note payable in money other than that stated in the
Notes, (vi) make any change in the provisions of the Indenture, the
Notes, the Guarantees or the Collateral Documents relating to
waivers of past Defaults or the rights of Holders of Notes to
receive payments of principal of or premium, if any, or interest on
the Notes, (vii) waive a redemption payment with respect to any Note
(other than a payment required by the provisions described under
"Certain Covenants Change of Control" or "Certain Covenants -Asset
Sales") or (viii) make any change in the foregoing amendment and
waiver provisions.
Notwithstanding the foregoing, without the consent of any
Holder of Notes, Sun World and the Trustee may amend or supplement
the Indenture or the Notes to cure any ambiguity, defect or
inconsistency, to provide for uncertificated Notes in addition to or
in place of certificated Notes, to provide for the assumption of Sun
World's obligations to Holders of Notes in the case of a merger or
consolidation, to make any change that would provide any additional
rights or benefits to the Holders of Notes or that does not
adversely affect the legal rights under the Indenture of any such
Holder, or to comply with requirements of the Commission in order to
effect or maintain the qualification of the Indenture under the
Trust Indenture Act.
THE TRUSTEE
The Indenture contains certain limitations on the rights of the
Trustee, should it become a creditor of Sun World, to obtain payment
of claims in certain cases, or to realize on certain property
received in respect of any such claim as security or otherwise. The
Trustee will be permitted to engage in other transactions; however,
if it acquires any conflicting interest it must eliminate such
conflict within 90 days, apply to the Commission for permission to
continue or resign.
The Holders of a majority in principal amount of the then
outstanding Notes will have the right to direct the time, method and
place of conducting any proceeding for exercising any remedy
available to the Trustee, subject to certain exceptions. The
Indenture provides that in case an Event of Default shall occur
(which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in
the conduct of his own affairs. Subject to such provisions, the
Trustee will be under no obligation to exercise any of its rights or
powers under the Indenture at the request of any Holder of Exchange
Notes, unless such Holder shall have offered to the Trustee security
and indemnity satisfactory to it against any loss, liability or
expense.
BOOK-ENTRY, DELIVERY AND FORM
Except as set forth in the next paragraph, the Exchange Notes
to be resold as set forth herein will initially be issued in the
form of one Global Note (the "Global Note"). The Global Note will
be deposited on the date of the closing of the sale of the Exchange
Notes offered hereby (the "Closing Date") with, or on behalf of, The
Depository Trust Company (the "Depositary") and registered in the
name of Cede & Co., as nominee of the Depositary (such nominee being
referred to herein as the "Global Note Holder").
Exchange Notes that are issued as described below under "-
Certificated Securities" will be issued in the form of registered
definitive certificates (the "Certificated Securities"). Upon the
transfer of Certificated Securities, such Certificated Securities
may, unless the Global Note has previously been exchanged for
Certificated Securities, be exchanged for an interest in the Global
Note representing the principal amount of Exchange Notes being
transferred.
The Depositary is a limited-purpose trust company that was
created to hold securities for its participating organizations
(collectively, the "Participants" or the "Depositary's
Participants") and to facilitate the clearance and settlement of
transactions in such securities between Participants through
electronic book-entry changes in accounts of its Participants. The
Depositary's Participants include securities brokers and dealers
(including the Initial Purchasers), banks and trust companies,
clearing corporations and certain other organizations. Access to
the Depositary's system is also available to other entities such as
banks, brokers, dealers and trust companies (collectively, the
"Indirect Participants" or the "Depositary's Indirect Participants")
that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly. Persons who are not
Participants may beneficially own securities held by or on behalf of
the Depositary only thorough the Depositary's Participants or the
Depositary's Indirect Participants.
The Sun World expects that pursuant to procedures established
by the Depositary (i) upon deposit of the Global Note, the
Depositary will credit the accounts of Participants designated by
the Initial Purchasers with portions of the principal amount of the
Global Note and (ii) ownership of the Exchange Notes evidenced by
the Global Note will be shown on, and the transfer of ownership
thereof will be effected only through, records maintained by the
Depositary (with respect to the interests of the Depositary's
Participants), the Depositary's Participants and the Depositary's
Indirect Participants. Prospective purchasers are advised that the
laws of some states require that certain persons take physical
delivery in definitive form of securities that they own.
Consequently, the ability to transfer Exchange Notes evidenced by
the Global Note will be limited to such extent.
So long as the Global Note Holder is the registered owner of
any Exchange Notes, the Global Note Holder will be considered the
sole Holder under the Indenture of any Exchange Notes evidenced by
the Global Note. Beneficial owners of Exchange Notes evidenced by
the Global Note will not be considered the owners or Holders thereof
under the Indenture for any purpose, including with respect to the
giving of any directions, instructions or approvals to the Trustee
thereunder. Neither Sun World nor the Trustee will have any
responsibility or liability for any aspect of the records of the
Depositary or for maintaining, supervising or reviewing any records
of the Depositary relating to the Exchange Notes.
Payments in respect of the principal of, premium, if any and
interest if any, on any Exchange Notes registered in the name of the
Global Note Holder on the applicable record date will be payable by
the Trustee to or at the direction of the Global Note Holder in its
capacity as the registered Holder under the Indenture. Under the
terms of the Indenture, Sun World and the Trustee may treat the
persons in whose names Exchange Notes, including the Global Note,
are registered as the owners thereof for the purpose of receiving
such payments. Consequently, neither Sun World nor the Trustee has
or will have any responsibility or liability for the payment of such
amounts to beneficial owners of Exchange Notes. Sun World believes,
however, that it is currently the policy of the Depositary to
immediately credit the accounts of the relevant Participants with
such payments, in amounts proportionate to their respective holdings
of beneficial interests in the relevant security as shown on the
records of the Depositary. Payments by the Depositary's Participants
and the Depositary's Indirect Participants to the beneficial owners
of Exchange Notes will be governed by standing instructions and
customary practice and will be the responsibility of the
Depositary's Participants or the Depositary's Indirect Participants.
CERTIFICATED SECURITIES
Subject to certain conditions, any person having a beneficial
interest in the Global Note may, upon request to the Trustee,
exchange such beneficial interest for Exchange Notes in the form of
Certificated Securities. Upon any such issuance, the Trustee is
required to register such Certificated Securities in the name of,
and cause the same to be delivered to, such person or persons (or
the nominee of any thereof). All such certificated Exchange Notes
would be subject to the legend requirements described herein under
"Notice to Investors." In addition, if (i) Sun World notifies the
Trustee in writing that the Depositary is no longer willing or able
to act as a depositary and Sun World is unable to locate a qualified
successor within 90 days or (ii) Sun World, at its option, notifies
the Trustee in writing that it elects to cause the issuance of
Exchange Notes in the form of Certificated Securities under the
Indenture, then, upon surrender by the Global Note Holder of its
Global Note, Exchange Notes in such form will be issued to each
person that the Global Note Holder and the Depositary identify as
being the beneficial owner of the related Exchange Notes.
Neither Sun World nor the Trustee will be liable for any delay
by the Global Note Holder or the Depositary in identifying the
beneficial owners of Exchange Notes and Sun World and the Trustee
may conclusively rely on, and will be protected in relying on,
instructions from the Global Note Holder or the Depositary for all
purposes.
SAME DAY SETTLEMENT AND PAYMENT
The Indenture requires that payments in respect of the Exchange
Notes represented by the Global Note (including principal, premium,
if any and interest) be made by wire transfer of immediately
available same day funds to the accounts specified by the Global
Note Holder. With respect to Certificated Securities, Sun World
will make all payments of principal, premium, if any, interest by
wire transfer of immediately available same day funds to the
accounts specified by the Holders thereof or, if no such account is
specified, by mailing a check to each such Holder's registered
address. The Sun World expects that secondary trading in the
Certificated Securities will also be settled in immediately
available funds.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
In connection with the issuance of the Old Notes, Sun World,
the Guarantors and the Initial Purchaser entered into a,
Registration Rights Agreement. Pursuant to the Registration Rights
Agreement, Sun World agreed to file with the Commission the Exchange
Offer Registration Statement on the appropriate form under the
Securities Act with respect to the Exchange Notes. Upon the
effectiveness of the Exchange Offer Registration Statement, Sun
World will offer to the Holders of Transfer Restricted Securities
pursuant to the Exchange Offer who are able to make certain
representations the opportunity to exchange their Transfer
Restricted Securities for Exchange Notes. If (i) Sun World is not
required to file the Exchange Offer Registration Statement or
permitted to consummate the Exchange Offer because the Exchange
Offer is not permitted by applicable law or Commission policy or
(ii) any Holder of Transfer Restricted Securities notifies Sun World
prior to the 20th day following consummation of the Exchange Offer
that (A) it is prohibited by law or Commission policy from
participating in the Exchange Offer or (B) that it may not resell
the Exchange Notes acquired by it in the Exchange Offer to the
public without delivering a prospectus and the prospectus contained
in the Exchange Offer Registration Statement is not appropriate or
available for such resales or (C) that it is a broker-dealer and
owns Exchange Notes acquired directly from Sun World or an affiliate
of Sun World, Sun World will file with the Commission a Shelf
Registration Statement to cover resales of the Exchange Notes by the
Holders thereof who satisfy certain conditions relating to the
provision of information in connection with the Shelf Registration
Statement. The Sun World will use its best efforts to cause the
applicable registration statement to be declared effective as
promptly as possible by the Commission. For purposes of the
foregoing, "Transfer Restricted Securities" means each Note until
(i) the date on which such Note has been exchanged by a person other
than a broker-dealer for an Exchange Note in the Exchange Offer,
(ii) following the exchange by a broker-dealer in the Exchange Offer
of a Note for an Exchange Note, the date on which such Exchange Note
is sold to a purchaser who receives from such broker-dealer on or
prior to the date of such sale a copy of the prospectus contained in
the Exchange Offer Registration Statement, (iii) the date on which
such Note has been effectively registered under the Securities Act
and disposed of in accordance with the Shelf Registration Statement
or (iv) the date on which such Note is distributed to the public
pursuant to Rule 144 under the Act.
The Registration Statement of which this Prospectus is a part
constitutes the Exchange Offer Registration Statement for the
Exchange Offer.
The Registration Rights Agreement provides that (i) Sun World
will file an Exchange Offer Registration Statement with the
Commission on or prior to 90 days after the Closing Date, (ii) Sun
World will use its best efforts to have the Exchange Offer
Registration Statement declared effective by the Commission on or
prior to 180 days after the Closing Date, (iii) unless the Exchange
Offer would not be permitted by applicable law or Commission policy,
Sun World will commence the Exchange Offer and use its best efforts
to issue on or prior to 30 business days after the date on which the
Exchange Offer Registration Statement was declared effective by the
Commission, Exchange Notes in exchange for all Old Notes tendered
prior thereto in the Exchange Offer and (iv) if obligated to file
the Shelf Registration Statement, Sun World will use its best
efforts to file the Shelf Registration Statement with the Commission
on or prior to 30 days after such filing obligation arises and to
cause the Shelf Registration to be declared effective by the
Commission on or prior to 90 days after such obligation arises. If
(a) Sun World fails to file any of the Registration Statements
required by the Registration Rights Agreement on or before the date
specified for such filing, (b) any of such Registration Statements
is not declared effective by the Commission on or prior to the date
specified for such effectiveness (the "Effectiveness Target Date"),
or (c) Sun World fails to consummate the Exchange Offer within 30
business days of the Effectiveness Target Date with respect to the
Exchange Offer Registration Statement, or (d) the Shelf Registration
Statement or the Exchange Offer Registration Statement is declared
effective but thereafter ceases to be effective or usable in
connection with resales of Transfer Restricted Securities during the
periods specified in the Registration Rights Agreement (each such
event referred to in clauses (a) through (d) above a "Registration
Default"), then Sun World will pay liquidated damages to each Holder
of Notes, with respect to the first 90-day period immediately
following the occurrence of the first Registration Default in an
amount equal to $.05 per week per $1,000 principal amount of Notes
held by such Holder ("Liquidated Damages"). The amount of the
Liquidated Damages will increase by an additional $.05 per week
per $1,000 principal amount of Notes with respect to each subsequent
90-day period until all Registration Defaults have been cured, up to
a maximum amount of Liquidated Damages of $.50 per week per $1,000
principal amount of Notes. All accrued Liquidated Damages will be
paid by Sun World on each Damages Payment Date to the Global Note
Holder by wire transfer of immediately available funds or by federal
funds check and to Holders of Certificated Securities by wire transfer
to the accounts specified by them or by mailing checks to their
registered addresses if no such accounts have been specified. Following
the cure of all Registration Defaults, the accrual of Liquidated
Damages will cease.
Holders of Exchange Notes will be required to make certain
representations to Sun World (as described in the Registration
Rights Agreement) in order to participate in the Exchange Offer and
will be required to deliver information to be used in connection
with the Shelf Registration Statement and to provide comments on the
Shelf Registration Statement within the time periods set forth in
the Registration Rights Agreement in order to have their Exchange
Notes included in the Shelf Registration Statement and benefit from
the provisions regarding Liquidated Damages set forth above.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the
Indenture. Reference is made to the Indenture for a full disclosure
of all such terms, as well as any other capitalized terms used
herein for which no definition is provided.
"ACQUIRED DEBT" means, with respect to any specified Person,
(i) Indebtedness of any other Person existing at the time such other
Person is merged with or into or became a Subsidiary of such
specified Person, including, without limitation, Indebtedness
incurred in connection with, or in contemplation of, such other
Person merging with or into or becoming a Subsidiary of such
specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"AFFILIATE" of any specified Person means any other Person
directly or indirectly controlling or controlled by or under direct
or indirect common control with such specified Person. For purposes
of this definition, "control" (including, with correlative meanings,
the terms "controlling," "controlled by" and "under common control
with"), as used with respect to any Person, shall mean the
possession, directly or indirectly, of the power to direct or cause
the direction of the management or policies of such Person, whether
through the ownership of voting securities, by agreement or
otherwise; provided that beneficial ownership of 10% or more of the
voting securities of a Person shall be deemed to be control.
"AFTER-ACQUIRED PROPERTY" means assets or property acquired
after the date of the Indenture as such term is defined in the
Indenture.
"ASSET SALE" means (i) the sale, lease, conveyance or other
disposition of any assets or rights (including, without limitation,
by way of a sale and leaseback) other than sales of inventory in the
ordinary course of business consistent with past practices (provided
that the sale, lease, conveyance or other disposition of all or
substantially all of the assets of Cadiz, Sun World and Sun World's
Subsidiaries taken as a whole will be governed by the provisions of
the Indenture described above under the caption "Certain Covenants
- -Change of Control" and/or the provisions described above under the
caption "Certain Covenants -Merger, Consolidation or Sale of Assets"
and not by the provisions of the Asset Sale covenant), and (ii) the
issue or sale by Cadiz, Sun World or any of its Subsidiaries of
Equity Interests of Sun World or any of Sun World's Subsidiaries, in
the case of either clause (i) or (ii), whether in a single
transaction or a series of related transactions (a) that have a fair
market value in excess of $1.0 million or (b) for net proceeds in
excess of $1.0 million. Notwithstanding the foregoing, none of the
following will constitute Asset Sales: (i) a transfer of assets by
Cadiz or Sun World to a Wholly Owned Restricted Subsidiary of Sun
World or by a Wholly Owned Restricted Subsidiary of Sun World to Sun
World or to another Wholly Owned Restricted Subsidiary of Sun World,
(ii) an issuance of Equity Interests by a Wholly Owned Restricted
Subsidiary of Sun World to Sun World or to another Wholly Owned
Restricted Subsidiary of Sun World, (iii) a Restricted Payment that
is permitted by the covenant described above under the caption
"Certain Covenants--Parent Restricted Payments" and "Certain
Covenants--Issuer Restricted Payments," and (iv) a transfer of
Revolving Credit Agreement Collateral.
"ATTRIBUTABLE DEBT" in respect of a sale and leaseback
transaction means, at the time of determination, the present value
(discounted at the rate of interest implicit in such transaction,
determined in accordance with GAAP) of the obligation of the lessee
for net rental payments during the remaining term of the lease
included in such sale and leaseback transaction (including any
period for which such lease has been extended or may, at the option
of the lessor, be extended).
"CADIZ" means Cadiz Land Company, Inc., a Delaware
corporation.
"CADIZ CREDIT AGREEMENT" means a credit agreement to be
entered into between Cadiz and a lending institution providing for
revolving credit borrowings, including any related notes,
guarantees, collateral documents, instruments and agreements
executed in connection therewith, and in each case as amended,
modified, renewed, refunded, replaced or refinanced from time to
time; provided, however, that neither Sun World nor any Subsidiary
of Sun World may provide any Guaranty of such Indebtedness.
"CADIZ WATER PROJECT" means the development of the system for
groundwater transfer by Cadiz of the water underlying Cadiz'
properties in the Cadiz and Fenner valleys of eastern California to
certain public agencies, such as the Metropolitan Water District,
including the construction of a pipeline between Cadiz' properties
and the Colorado River Aqueduct.
"CAPITAL LEASE OBLIGATION" means, at the time any
determination thereof is to be made, the amount of the liability in
respect of a capital lease that would at such time be required to be
capitalized on a balance sheet in accordance with GAAP.
"CAPITAL STOCK" means (i) in the case of a corporation,
corporate stock, (ii) in the case of an association or business
entity, any and all shares, interests, participations, rights or
other equivalents (however designated) of corporate stock, (iii) in
the case of a partnership or limited liability company, partnership
or membership interests (whether general or limited) and (iv) any
other interest or participation that confers on a Person the right
to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person.
"CASH EQUIVALENTS" means (i) United States dollars, (ii) any
evidence of Indebtedness with a maturity of 365 days or less issued
or directly and fully guaranteed or insured by the United States of
America or any agency or instrumentality thereof (provided that the
full faith and credit of the United States of America is pledged in
support thereof); (iii) certificates of deposit or acceptances with
a maturity of 365 days or less of any financial institution that is
a member of the Federal Reserve System having a combined capital and
surplus and undivided profits of not less than $500,000,000;
(iv) certificates of deposit with a maturity of 365 days or less of
any financial institution that is organized under the laws of the
United States, or any state thereof or the District of Columbia that
are rated at least A-2 by Standard & Poor's Corporation or at least
P-2 by Moody's Investors Service, Inc. or at least an equivalent
rating category of another nationally recognized securities rating
agency; (v) repurchase agreements and reverse repurchase agreements
relating to marketable direct obligations issued or unconditionally
guaranteed by the government of the United States of America or
issued by any agency thereof and backed by the full faith and credit
of the United States of America, in each case maturing within 365
days from the date of acquisition; provided that the terms of such
agreements comply with the guidelines set forth in the Federal
Financial Agreements of Depository Institutions With Securities
Dealers and Others, as adopted by the Comptroller of the Currency on
October 31, 1985; and (vi) commercial paper having a rating of at
least A-2 by Standard & Poor's Corporation or at least P-2 by
Moody's Investors Service, Inc. or at least an equivalent rating
category of another nationally recognized securities rating agency
and in each case maturing within six months after the date of
acquisition.
"COLLATERAL" means interests of Cadiz, Sun World or any
Subsidiary of Sun World in all of their assets, other than the
Excluded Assets.
"COLLATERAL ACCOUNT" means the collateral account established
pursuant to the Indenture.
"COLLATERAL DOCUMENTS" mean, collectively, the Security
Agreement, the Deeds of Trust, Sun World Pledge Agreement, the Cadiz
Pledge Agreement, the Intercreditor Agreement and any other pledges,
agreements, instruments, financing statements, filing or other
documents that evidence, set forth or limit the Lien in favor of the
Trustee in the Collateral.
"CONSOLIDATED CASH FLOW" means, with respect to any Person for
any period, the Consolidated Net Income of such Person for such
period plus (i) an amount equal to any extraordinary loss plus any
net loss realized in connection with an Asset Sale (to the extent
such losses were deducted in computing such Consolidated Net
Income), plus (ii) provision for taxes based on income or profits of
such Person and its Subsidiaries for such period, to the extent that
such provision for taxes was included in computing such Consolidated
Net Income, plus (iii) consolidated interest expense of such Person
and its Subsidiaries for such period, whether paid or accrued and
whether or not capitalized (including, without limitation,
amortization of debt issuance costs and original issue discount,
non-cash interest payments, the interest component of any deferred
payment obligations, the interest component of all payments
associated with Capital Lease Obligations, imputed interest with
respect to Attributable Debt, commissions, discounts and other fees
and charges incurred in respect of letter of credit or bankers'
acceptance financings, and net payments (if any) pursuant to Hedging
Obligations), to the extent that any such expense was deducted in
computing such Consolidated Net Income, plus (iv) depreciation,
amortization (including amortization of goodwill and other
intangibles but excluding amortization of prepaid cash expenses that
were paid in a prior period) and other non-cash expenses (excluding
any such non-cash expense to the extent that it represents an
accrual of or reserve for cash expenses in any future period or
amortization of a prepaid cash expense that was paid in a prior
period) of such Person and its Subsidiaries for such period to the
extent that such depreciation, amortization and other non-cash
expenses were deducted in computing such Consolidated Net Income,
minus (v) non-cash non-recurring items whether or not considered
extraordinary under GAAP, in each case, on a consolidated basis and
determined in accordance with GAAP. Notwithstanding the foregoing,
the provision for taxes based on the income or profits of, and the
depreciation and amortization and other non-cash charges of, a
Subsidiary of a Person shall be added to Consolidated Net Income to
compute Consolidated Cash Flow only to the extent (and in the same
proportion) that the Net Income of such Subsidiary was included in
calculating the Consolidated Net Income of such Person and only if
a corresponding amount would be permitted at the date of
determination to be dividended to Cadiz or to Sun World without
prior approval (that has not been obtained), pursuant to the terms
of its charter and all agreements, instruments, judgments, decrees,
orders, statutes, rules and governmental regulations applicable to
Sun World, the Subsidiary or its stockholders.
"CONSOLIDATED LEASE EXPENSE" means, with respect to any Person
for any period, the aggregate rental obligations of such Person and
its consolidated Restricted Subsidiaries determined on a
consolidated basis in accordance with GAAP payable in respect of
such period under leases of real property (net of income from
subleases thereof, but including taxes, insurance, maintenance and
similar expenses that the lessee is obligated to pay under the terms
of such leases), whether or not such obligations are reflected as
liabilities or commitments on a consolidated balance sheet of such
Person and its Restricted Subsidiaries or in the notes thereto.
"CONSOLIDATED NET INCOME" means, with respect to any Person
for any period, the aggregate of the Net Income of such Person and
its Subsidiaries for such period, on a consolidated basis,
determined in accordance with GAAP; provided that (i) the Net Income
(but not loss) of any Person that is not a Subsidiary or that is
accounted for by the equity method of accounting shall be included
only to the extent of the amount of dividends or distributions paid
in cash to the referent Person or a Wholly Owned Subsidiary thereof,
(ii) the Net Income of any Subsidiary shall be excluded to the
extent that the declaration or payment of dividends or similar
distributions by that Subsidiary of that Net Income is not at the
date of determination permitted without any prior governmental
approval (that has not been obtained) or, directly or indirectly, by
operation of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation
applicable to that Subsidiary or its stockholders, (iii) the Net
Income of any Person acquired in a pooling of interests transaction
for any period prior to the date of such acquisition shall be
excluded, (iv) the cumulative effect of a change in accounting
principles shall be excluded, and (v) the Net Income of any
Unrestricted Subsidiary shall be excluded, whether or not
distributed to Sun World or one of its Subsidiaries.
"CONSOLIDATED NET WORTH" means, with respect to any Person as
of any date, the sum of (i) the consolidated equity of the common
stockholders of such Person and its consolidated Subsidiaries as of
such date plus (ii) the respective amounts reported on such Person's
balance sheet as of such date with respect to any series of
preferred stock (other than Disqualified Stock) that by its terms is
not entitled to the payment of dividends unless such dividends may
be declared and paid only out of net earnings in respect of the year
of such declaration and payment, but only to the extent of any cash
received by such Person upon issuance of such preferred stock, less
(x) all write-ups (other than write-ups resulting from foreign
currency translations and write-ups of tangible assets of a going
concern business made within 12 months after the acquisition of such
business) subsequent to the date of the Indenture in the book value
of any asset owned by such Person or a consolidated Subsidiary of
such Person, (y) all investments as of such date in unconsolidated
Subsidiaries and in Persons that are not Subsidiaries (except, in
each case, Permitted Investments), and (z) all unamortized debt
discount and expense and unamortized deferred charges as of such
date, all of the foregoing determined in accordance with GAAP.
"CONTINUING DIRECTORS" means, as of the date of determination,
any member of the Board of Directors of a Person who (i) was a
member of such Board of Directors on the Issue Date or (ii) was
nominated for election or elected to such Board of Directors with
the affirmative vote of at least a majority of the Continuing
Directors who were members of such Board at the time of such
nomination or election.
"DEFAULT" means any event that is or with the passage of time
or the giving of notice or both would be an Event of Default.
"DISQUALIFIED STOCK" means any Capital Stock that, by its
terms (or by the terms of any security into which it is convertible
or for which it is exchangeable), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking
fund obligation or otherwise, or redeemable at the option of the
Holder thereof, in whole or in part, on or prior to the date that is
91 days after the date on which the Exchange Notes mature.
"EXCLUDED ASSETS" means (i) all of the assets of Cadiz other
than the stock of Sun World, (ii) the Revolving Credit Agreement
Collateral, (iii) any Proceeds or products arising out of Revolving
Credit Agreement Collateral, (iv) rights to payment of money or
Chattel Paper arising from the sale of Revolving Credit Agreement
Collateral or insurance proceeds payable in respect of Revolving
Credit Agreement Collateral, except to the extent that any such
Proceeds or products (including money and Chattel Paper) constitute
or are deemed to constitute Collateral Proceeds, (v) the Zenith
Collateral, and (vi) certain other assets of the Issuer and its
Subsidiaries, the value of which is immaterial in the aggregate,
as set forth in the Collateral Documents.
"EQUITY INTERESTS" means Capital Stock and all warrants,
options or other rights to acquire Capital Stock (but excluding any
debt security that is convertible into, or exchangeable for, Capital
Stock).
"EXISTING INDEBTEDNESS" means up to $16.8 million in aggregate
principal amount of Indebtedness of Cadiz, Sun World and its
Restricted Subsidiaries (other than Indebtedness under the Cadiz
Credit Agreement and the Revolving Credit Agreement) in existence on
the date of the Indenture, until such amounts are repaid.
"FIXED CHARGES" means, with respect to any Person for any
period, the sum, without duplication, of (i) the consolidated
interest expense of such Person and its Restricted Subsidiaries for
such period, whether paid or accrued (including, without limitation,
amortization of debt issuance costs and original issue discount,
non-cash interest payments, the interest component of any deferred
payment obligations, the interest component of all payments
associated with Capital Lease Obligations, imputed interest with
respect to Attributable Debt, commissions, discounts and other fees
and charges incurred in respect of letter of credit or bankers'
acceptance financings, and net payments (if any) pursuant to Hedging
Obligations) and (ii) the consolidated interest expense of such
Person and its Restricted Subsidiaries that was capitalized during
such period, and (iii) any interest expense on Indebtedness of
another Person that is Guarantied by such Person or one of its
Restricted Subsidiaries or secured by a Lien on assets of such
Person or one of its Restricted Subsidiaries (whether or not such
Guaranty or Lien is called upon) and (iv) the product of (a) all
dividend payments, whether or not in cash, on any series of
preferred stock of such Person or any of its Restricted
Subsidiaries, other than dividend payments on Equity Interests
payable solely in Equity Interests of Cadiz or Sun World, as the
case may be, times (b) a fraction, the numerator of which is one and
the denominator of which is one minus the then current combined
federal, state and local statutory tax rate of such Person,
expressed as a decimal, in each case, on a consolidated basis and in
accordance with GAAP; provided, however, that the denominator in
clause (b) shall be one if such dividend or other distribution is a
tax deductible expense for federal income tax purposes under the
Internal Revenue Code of 1986, as amended.
"FIXED CHARGE COVERAGE RATIO" means with respect to any Person
and its Restricted Subsidiaries for any period, the ratio of the
Consolidated Cash Flow of such Person and its Restricted
Subsidiaries for such period to the Fixed Charges of such Person and
its Restricted Subsidiaries for such period. In the event that
Cadiz, Sun World or any of Sun World's Restricted Subsidiaries
incurs, assumes, Guaranties or redeems any Indebtedness (other than
revolving credit borrowings) or issues preferred stock subsequent to
the commencement of the period for which the Fixed Charge Coverage
Ratio is being calculated but prior to the date on which the event
for which the calculation of the Fixed Charge Coverage Ratio is made
(the "Calculation Date"), then the Fixed Charge Coverage Ratio shall
be calculated giving pro forma effect to such incurrence,
assumption, Guaranty or redemption of Indebtedness, or such issuance
or redemption of preferred stock, as if the same had occurred at the
beginning of the applicable four-quarter reference period. In
addition, for purposes of making the computation referred to above,
(i) acquisitions that have been made by Sun World or any of its
Restricted Subsidiaries, including through mergers or consolidations
and including any related financing transactions, during the
four-quarter reference period or subsequent to such reference period
and on or prior to the Calculation Date shall be deemed to have
occurred on the first day of the four-quarter reference period and
Consolidated Cash Flow for such reference period shall be calculated
without giving effect to clause (iii) of the proviso set forth in
the definition of Consolidated Net Income, and (ii) the Consolidated
Cash Flow attributable to discontinued operations, as determined in
accordance with GAAP, and operations or businesses disposed of prior
to the Calculation Date, shall be excluded, and (iii) the Fixed
Charges attributable to discontinued operations, as determined in
accordance with GAAP, and operations or businesses disposed of prior
to the Calculation Date, shall be excluded, but only to the extent
that the obligations giving rise to such Fixed Charges will not be
obligations of the referent Person or any of its Restricted
Subsidiaries following the Calculation Date.
"GAAP" means generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial
Accounting Standards Board or in such other statements by such other
entity as have been approved by a significant segment of the
accounting profession, which are in effect from time to time.
"GUARANTY" means a guarantee (other than by endorsement of
negotiable instruments for collection in the ordinary course of
business), direct or indirect, in any manner (including, without
limitation, letters of credit and reimbursement agreements in
respect thereof), of all or any part of any Indebtedness.
"HEDGING OBLIGATIONS" means, with respect to any Person, the
obligations of such Person under (i) interest rate swap agreements,
interest rate cap agreements and interest rate collar agreements and
(ii) other agreements or arrangements designed to protect such
Person against fluctuations in interest rates.
"INDEBTEDNESS" means, with respect to any Person, any
indebtedness of such Person, whether or not contingent, in respect
of borrowed money or evidenced by bonds, notes, debentures or
similar instruments or letters of credit (or reimbursement
agreements in respect thereof) or banker's acceptances or
representing Capital Lease Obligations or the balance deferred and
unpaid of the purchase price of any property or representing any
Hedging Obligations, except any such balance that constitutes an
accrued expense or trade payable, if and to the extent any of the
foregoing indebtedness (other than letters of credit and Hedging
Obligations) would appear as a liability upon a balance sheet of
such Person prepared in accordance with GAAP, as well as all
indebtedness of others secured by a Lien on any asset of such Person
(whether or not such indebtedness is assumed by such Person) and, to
the extent not otherwise included, the Guaranty by such Person of
any indebtedness of any other Person. The amount of any Indebtedness
outstanding as of any date shall be (i) the accreted value thereof,
in the case of any Indebtedness that does not require current
payments of interest, and (ii) the principal amount thereof,
together with any interest thereon that is more than 30 days past
due, in the case of any other Indebtedness.
"INVESTMENTS" means, with respect to any Person, all
investments by such Person in other Persons (including Affiliates)
in the forms of direct or indirect loans (including guarantees of
Indebtedness or other obligations), advances or capital
contributions (excluding commission, travel and similar advances to
officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness,
Equity Interests or other securities, together with all items that
are or would be classified as investments on a balance sheet
prepared in accordance with GAAP. If Sun World or any Subsidiary of
Sun World sells or otherwise disposes of any Equity Interests of any
direct or indirect Subsidiary of Sun World such that, after giving
effect to any such sale or disposition, such Person is no longer a
Subsidiary of Sun World, Sun World shall be deemed to have made an
Investment on the date of any such sale or disposition equal to the
fair market value of the Equity Interests of such Subsidiary not
sold or disposed of in an amount determined as provided in the final
paragraph of the covenant described above under the caption
" -Restricted Payments."
"ISSUE DATE" means the date on which the Notes were originally
issued.
"LIEN" means, with respect to any asset, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in
respect of such asset, whether or not filed, recorded or otherwise
perfected under applicable law (including any conditional sale or
other title retention agreement, any lease in the nature thereof,
any option or other agreement to sell or give a security interest in
and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
"NET INCOME" means, with respect to any Person, the net income
(loss) of such Person, determined in accordance with GAAP and before
any reduction in respect of preferred stock dividends, excluding,
however, (i) any gain (but not loss), together with any related
provision for taxes on such gain (but not loss), realized in
connection with (a) any Asset Sale (including, without limitation,
dispositions pursuant to sale and leaseback transactions) or (b) the
disposition of any securities by such Person or any of its
Restricted Subsidiaries or the extinguishment of any Indebtedness of
such Person or any of its Restricted Subsidiaries and (ii) any
extraordinary or nonrecurring gain (but not loss), together with any
related provision for taxes on such extraordinary or nonrecurring
gain (but not loss).
"NET INSURANCE PROCEEDS" means the insurance proceeds
(excluding liability insurance payable to the Trustee for any loss,
liability or expense incurred by it) paid as a result of damage to,
or the loss, destruction or condemnation of, all of any portion of
the Collateral, less collection costs.
"NET PROCEEDS" means the aggregate cash proceeds received by
Cadiz, Sun World or any of its Restricted Subsidiaries in respect of
any Asset Sale (including, without limitation, any cash received
upon the sale or other disposition of any non-cash consideration
received in any Asset Sale), net of the direct costs relating to
such Asset Sale (including, without limitation, legal, accounting
and investment banking fees, and sales commissions) and any
relocation expenses incurred as a result thereof, taxes paid or
payable as a result thereof (after taking into account any available
tax credits or deductions and any tax sharing arrangements), and any
reserve for adjustment in respect of the sale price of such asset or
assets established in accordance with GAAP.
"NON-RECOURSE DEBT" means Indebtedness: (i) as to which
neither Cadiz, Sun World nor any of Sun World's Restricted
Subsidiaries (a) provides credit support of any kind (including any
undertaking, agreement or instrument that would constitute
Indebtedness), (b) is directly or indirectly liable (as a guarantor
or otherwise), or (c) constitutes the lender; (ii) no default with
respect to which (including any rights that the holders thereof may
have to take enforcement action against any Subsidiary) would permit
(upon notice, lapse of time or both) any holder of any other
Indebtedness (other than the Notes) of Cadiz, Sun World or any of
their Restricted Subsidiaries to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or
payable prior to its stated maturity; and (iii) as to which the
lenders have been notified in writing that they will not have any
recourse to the stock or assets of Cadiz, Sun World or any of their
Restricted Subsidiaries; provided, however, that in the case of
Indebtedness incurred to finance a Qualified Project, such
Indebtedness shall be considered Non-Recourse Debt if such
Indebtedness meets the above criteria, other than credit support or
recourse of such Indebtedness provided by Cadiz' water rights or
assets directly involved in the construction or operation of such
Qualified Project.
"OBLIGATIONS" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities
payable under the documentation governing any Indebtedness.
"PACA" means the Perishable Agricultural Commodities Act, 7
U.S.C 499 et seq.
"PERMITTED BUSINESSES" means: (i) in the case of Sun World,
the growing, harvesting, marketing, distribution, processing or
packing of produce, the development and licensing of proprietary
strains of produce, the investment in Sun Date and American
SunMelon, and the Rayo water project, and (ii) in the case of Cadiz,
the Permitted Business of Sun World, together with the development
of groundwater transfer and storage projects and investment in
agricultural real property.
"PERMITTED INVESTMENTS" means (a) any Investment in Sun World
or in a Wholly Owned Restricted Subsidiary of Sun World that is
evidenced by Capital Stock or Subsidiary Intercompany Notes and that
is engaged in a Permitted Business; (b) any Investment in Cash
Equivalents; (c) any Investment by Sun World or any Restricted
Subsidiary of Sun World in a Person that is evidenced by Capital
Stock or Subsidiary Intercompany Notes, if as a result of such
Investment (i) such Person becomes a Wholly Owned Restricted
Subsidiary of Sun World and a Guarantor that is engaged in the same
or a similar line of business as Sun World and its Restricted
Subsidiaries were engaged in on the date of the Indenture or
(ii) such Person is merged, consolidated or amalgamated with or
into, or transfers or conveys substantially all of its assets to, or
is liquidated into, Sun World or a Wholly Owned Restricted
Subsidiary of Sun World; (d) any Restricted Investment made as a
result of the receipt of non-cash consideration from an Asset Sale
that was made pursuant to and in compliance with the covenant
described above under the caption "- Asset Sales;" (e) any
acquisition of assets solely in exchange for the issuance of Equity
Interests (other than Disqualified Stock) of Sun World; and
(f) other Investments in any Person having an aggregate fair market
value (measured on the date each such Investment was made and
without giving effect to subsequent changes in value), when taken
together with all other Investments made pursuant to this clause
(f) that are at the time outstanding, not to exceed $3.0 million.
"PERMITTED LIENS" means (i) Liens securing obligations under
the Indenture, the Notes, the Guarantees and the Collateral
Documents; (ii) Liens on Revolving Credit Agreement Collateral that
were permitted by the terms of the Indenture to be incurred;
(iii) Liens in favor of Sun World or any of Sun World's Restricted
Subsidiaries; (iv) Liens on property of a Person existing at the
time such Person is merged into or consolidated with Sun World or
any Subsidiary of Sun World; provided that such Liens were in
existence prior to the contemplation of such merger or consolidation
and do not extend to any assets other than those of the Person
merged into or consolidated with Sun World; (v) Liens on property
existing at the time of acquisition thereof by Sun World or any
Subsidiary of Sun World, provided that such Liens were in existence
prior to the contemplation of such acquisition; (vi) Liens to secure
the performance of statutory obligations, surety or appeal bonds,
performance bonds or other obligations of a like nature incurred in
the ordinary course of business; (vii) Liens to secure Purchase
Money Indebtedness permitted by clauses (vi) of the third paragraph
and clause (vii) of the fourth paragraph of the covenant entitled
"Incurrence of Indebtedness and Issuance of Preferred Stock"
covering only the assets acquired with such Indebtedness;
(viii) Liens existing on the date of the Indenture; (ix) Liens for
taxes, assessments or governmental charges or claims that are not
yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently
concluded, provided that any reserve or other appropriate provision
as shall be required in conformity with GAAP shall have been made
therefor; (x) Liens incurred in the ordinary course of business of
Sun World or any Subsidiary of Sun World with respect to obligations
that do not exceed $2.0 million in the aggregate at any one time
outstanding and that (a) are not incurred in connection with the
borrowing of money or the obtaining of advances or credit (other
than trade credit in the ordinary course of business) and (b) do not
in the aggregate materially detract from the value of the property
or materially impair the use thereof in the operation of business by
Sun World or such Subsidiary; (xi) Liens on Excluded Assets of Cadiz
to (a) secure borrowings under the Cadiz Credit Agreement and (b)
finance Qualified Projects; (xii) Liens on assets of Unrestricted
Subsidiaries that secure Non-Recourse Debt of Unrestricted
Subsidiaries; (xiii) Liens on Excluded Assets of Cadiz to secure
Permitted Refinancing Indebtedness; and (xiv) Liens or claims
arising under PACA or any successor statute thereto, to the extent
that (A) such Liens cannot be asserted against the Collateral or
(B) the total amount of such outstanding Liens does not exceed
$7.0 million.
"PERMITTED REFINANCING INDEBTEDNESS" means any Indebtedness of
Cadiz, Sun World or any of Sun World's Restricted Subsidiaries
issued in exchange for, or the net proceeds of which are used to
extend, refinance, renew, replace, defease or refund other
Indebtedness of Cadiz, Sun World or any of Sun World's Restricted
Subsidiaries; provided that: (i) the principal amount (or accreted
value, if applicable) of such Permitted Refinancing Indebtedness
does not exceed the principal amount of (or accreted value, if
applicable), plus accrued interest on, the Indebtedness so extended,
refinanced, renewed, replaced, defeased or refunded (plus the amount
of reasonable expenses incurred in connection therewith) outstanding
as of the date of such extension, refinancing, renewal, replacement,
defeasance or refunding; (ii) such Permitted Refinancing
Indebtedness has a final maturity date later than the final maturity
date of, and has a Weighted Average Life to Maturity equal to or
greater than the Weighted Average Life to Maturity of, the
Indebtedness being extended, refinanced, renewed, replaced, defeased
or refunded; (iii) if the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded is subordinated in right of
payment to the Exchange Notes, such Permitted Refinancing
Indebtedness has a final maturity date later than the final maturity
date of, and is subordinated in right of payment to, the Exchange
Notes on terms at least as favorable to the Holders of Exchange
Notes as those contained in the documentation governing the
Indebtedness being extended, refinanced, renewed, replaced, defeased
or refunded; and (iv) such Indebtedness is incurred either by Cadiz,
Sun World or by the Restricted Subsidiary who is the obligor on the
Indebtedness being extended, refinanced, renewed, replaced, defeased
or refunded.
"PURCHASE MONEY INDEBTEDNESS" of any Person means any
obligations of such Person to any seller or any other Person
incurred or assumed to finance the purchase, or the cost of
construction or improvement, of real or personal property to be used
in the business of such Person or any of its Subsidiaries in an
amount that is not more than 100% of the cost, or fair market value,
as appropriate, of such property, and incurred to finance such
acquisition (excluding accounts payable to trade creditors incurred
in the ordinary course of business).
"QUALIFIED PROJECT" means a project by Cadiz (i) to develop
its rights to water that is financed solely through the issuance of
Non-Recourse Debt and Equity Interests of Cadiz (other than
Disqualified Stock), including the Cadiz Water Project or (ii) an
investment in agricultural real property.
"RESTRICTED INVESTMENT" means an Investment other than a
Permitted Investment.
"RESTRICTED SUBSIDIARY" of a Person means any Subsidiary of
the referent Person that is not an Unrestricted Subsidiary.
"REVOLVING CREDIT AGREEMENT" means that certain Credit
Agreement entered into by and among Sun World and Rabobank,
providing for revolving credit borrowings, including any related
notes, guarantees, collateral documents, instruments and agreements
executed in connection therewith, and in each case as amended,
modified, renewed, refunded, replaced or refinanced from time to
time.
"REVOLVING CREDIT AGREEMENT COLLATERAL" means all of Sun
World's cash and cash equivalents (other than funds which are or are
to become Trust Monies), accounts receivable, growing crops, farm
products and inventory and all of the cash and cash equivalents
(other than funds which are or are to become Trust Monies), accounts
receivable, growing crops, farm products and inventory of Sun
World's Subsidiaries.
"REVOLVING INDEBTEDNESS" means Indebtedness under the
Revolving Credit Agreement.
"SIGNIFICANT SUBSIDIARY" means any Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of
Regulation S-X, promulgated pursuant to the Act, as such Regulation
is in effect on the date hereof.
"STATED MATURITY" means, with respect to any installment of
interest or principal on any series of Indebtedness, the date on
which such payment of interest or principal was scheduled to be paid
in the original documentation governing such Indebtedness, and shall
not include any contingent obligations to repay, redeem or
repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"SUBSIDIARY" means, with respect to any Person, (i) any
corporation, association or other business entity of which more than
50% of the total voting power of shares of Capital Stock entitled
(without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time
owned or controlled, directly or indirectly, by such Person or one
or more of the other Subsidiaries of that Person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or
the managing general partner of which is such Person or a Subsidiary
of such Person or (b) the only general partners of which are such
Person or of one or more Subsidiaries of such Person (or any
combination thereof).
"SUBSIDIARY INTERCOMPANY NOTES" means the intercompany notes
issued by Subsidiaries of Sun World in favor of Sun World to
evidence advances by Sun World, in each case, in the form attached
as Annex B to the Indenture.
"TRUST MONIES" means all cash and Cash Equivalents received by
the Trustee: (i) upon the release of Collateral from the Lien of the
Indenture and/or the Collateral Documents, including all Collateral
Proceeds (and amounts deemed, pursuant to the Indenture, to
constitute Collateral Proceeds) and all moneys received in respect
of the principal of all purchase money, governmental and other
obligations; (ii) as Net Insurance Proceeds (other than any
liability insurance proceeds payable to the Trustee for any loss,
liability or expense incurred by it); (iii) pursuant to the
Collateral Documents; (iv) as proceeds of any sale or other
disposition of all or any part of the Collateral by or on behalf of
the Trustee or any collection, recovery, receipt, appropriation or
other realization of or from all or any part of the Collateral
pursuant to the Indenture or any of the Collateral Documents or
otherwise; (v) which constitute Collateral Proceeds or are deemed
pursuant to the Indenture to constitute Collateral Proceeds from any
transaction which results in a Subsidiary Guarantor being released
from its Subsidiary Guarantee pursuant to the Indenture; or (vi) for
application as provided in the relevant provisions of the Indenture
or any Collateral Document or which disposition is not otherwise
specifically provided for in the Indenture or in any Collateral
Document; provided, however, that Trust Monies shall in no event
include any property deposited with the Trustee for any redemption,
legal defeasance or covenant defeasance of Notes, for the
satisfaction and discharge of the Indenture or to pay the purchase
price of Notes pursuant to a Change of Control Offer.
"UNRESTRICTED SUBSIDIARY" means (i) any Subsidiary or any
successor to any of them, that is designated by the Board of
Directors as an Unrestricted Subsidiary pursuant to a Board
Resolution; but only to the extent that such Subsidiary: (a) has no
Indebtedness other than Non-Recourse Debt; (b) is not party to any
agreement, contract, arrangement or understanding with Cadiz, Sun
World or any Restricted Subsidiary unless the terms of any such
agreement, contract, arrangement or understanding are no less
favorable to Cadiz, Sun World or such Restricted Subsidiary than
those that might be obtained at the time from Persons who are not
Affiliates of Cadiz or Sun World; (c) is a Person with respect to
which none of Cadiz, Sun World or any Restricted Subsidiary has any
direct or indirect obligation (x) to subscribe for additional Equity
Interests or (y) to maintain or preserve such Person's financial
condition or to cause such Person to achieve any specified levels of
operating results; (d) has not guaranteed or otherwise directly or
indirectly provided credit support for any Indebtedness of Cadiz,
Sun World or any Restricted Subsidiary; and (e) has at least one
director on its board of directors that is not a director or
executive officer of Cadiz, Sun World or any Restricted Subsidiary
and has at least one executive officer that is not a director or
executive officer of Cadiz, Sun World or any Restricted Subsidiary.
Any such designation by the Board of Directors shall be evidenced to
the Trustee by filing with the Trustee a certified copy of the Board
Resolution giving effect to such designation and an Officers'
Certificate certifying that such designation complied with the
foregoing conditions and was permitted by the covenant described
above under the caption "Certain Covenants Restricted Payments."
If, at any time, any Unrestricted Subsidiary would fail to meet the
foregoing requirements as an Unrestricted Subsidiary, it shall
thereafter cease to be an Unrestricted Subsidiary for purposes of
the Indenture and any Indebtedness of such Subsidiary shall be
deemed to be incurred by a Restricted Subsidiary of Cadiz or Sun
World as applicable, as of such date (and, if such Indebtedness is
not permitted to be incurred as of such date under the covenant
described under the caption "Incurrence of Indebtedness and Issuance
of Preferred Stock," Cadiz or Sun World shall be in default of such
covenant). The Board of Directors of Cadiz or Sun World may at any
time designate any Unrestricted Subsidiary to be a Restricted
Subsidiary; provided that such designation shall be deemed to be an
incurrence of Indebtedness by a Restricted Subsidiary of Cadiz or
Sun World of any outstanding Indebtedness of such Unrestricted
Subsidiary and such designation shall only be permitted if (i) such
Indebtedness is permitted under the covenant described under the
caption "Certain Covenants Incurrence of Indebtedness and Issuance
of Preferred Stock," calculated on a pro forma basis as if such
designation had occurred at the beginning of the four-quarter
reference period, and (ii) no Default or Event of Default would be
in existence following such designation.
"VOTING STOCK" of any Person as of any date means the Capital
Stock of such Person that is at the time entitled to vote in the
election of the Board of Directors of such Person.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing
(i) the sum of the products obtained by multiplying (a) the amount
of each then remaining installment, sinking fund, serial maturity or
other required payments of principal, including payment at final
maturity, in respect thereof, by (b) the number of years (calculated
to the nearest one-twelfth) that will elapse between such date and
the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"WHOLLY OWNED RESTRICTED SUBSIDIARY" of any Person means a
Restricted Subsidiary of such Person all of the outstanding Capital
Stock or other ownership interests of which (other than directors'
qualifying shares) shall at the time be owned by such Person or by
one or more Wholly Owned Restricted Subsidiaries of such Person and
one or more Wholly Owned Restricted Subsidiaries of such Person.
"ZENITH COLLATERAL" means an undivided one-half interest in
4,222 acres of farm property located near Blythe, California in
which a senior security interest has been granted by Sun World to
Zenith Insurance Company as security for certain Existing
Indebtedness.
DESCRIPTION OF OTHER INDEBTEDNESS
REVOLVING CREDIT AGREEMENT
The summary of the Revolving Credit Agreement set forth below
does not purport to be complete and is qualified in its entirety by
reference to all of the provisions of the the Revolving Credit Agreement.
Rabobank and the Initial Purchaser were the original lenders
under the Revolving Credit Agreement, each having a $15.0 million
interest. On May 29, 1997, the Initial Purchaser's interest was
assigned to Harris Bank. Rabobank serves as agent for such lenders.
The Revolving Credit Agreement is used to finance Sun World's
seasonal working capital needs. The Revolving Credit Agreement is
secured by a first priority security interest in cash, cash
equivalents, growing crops, crop inventories, accounts receivable
and proceeds thereof. The Revolving Credit Agreement provides for
advances to Sun World of up to (i) 80% of eligible U.S. accounts
receivable not more than 70 days past due with concentration and
default provisions; plus a percentage (ranging from 30% to 45%
depending on the time of year) of eligible U.S. growing crops and
crop inventories up to a maximum of $9 million from July 16 through
April 15 and $12 million from April 16 through July 15. In
addition, obligations under the Revolving Credit Agreement are
unconditionally guaranteed by Cadiz and by the Subsidiary
Guarantors.
The Revolving Credit Agreement bears interest at prime plus
1.5% or LIBOR plus 2.5%, subject in each case to a 50 basis point
increase based upon borrowing base levels. Sun World will pay
commitment fees at a rate of 0.50% per annum on unused commitments.
The Revolving Credit Agreement contains customary covenants,
including financial covenants relating to, among other things,
minimum net income and EBITDA, minimum net worth, total liabilities
to tangible net worth ratios and capital expenditure limitations.
INTERCREDITOR AGREEMENT
The agent under the Revolving Credit Agreement (the "Agent
Bank"), on behalf of the lenders, and the Trustee, on behalf of the
holders of Exchange Notes, has entered into an intercreditor
agreement (the "Intercreditor Agreement") setting forth certain
agreements with respect to the Collateral and the Revolving Credit
Agreement Collateral.
Pursuant to the terms of the Intercreditor Agreement, among
other things, the Trustee shall grant to the Agent Bank a license
(the "License") for a period of up to one year following delivery of
a notice of default under the Exchange Notes or related documents.
The License shall permit access to, and the right to make use of,
certain Collateral, to the extent necessary to farm, cultivate,
harvest and sell crops and other farm products constituting the
Revolving Credit Agreement Collateral. In addition, the Trustee
shall waive certain rights it may acquire with respect to Revolving
Credit Agreement Collateral by virtue of the Trustee's interest in
the Collateral or otherwise.
The provisions of the Intercreditor Agreement, including the
License, could affect the ability of the Trustee to enforce certain
remedies under the Collateral Documents and the timing of any such
enforcement.
UNITED STATES FEDERAL TAX CONSEQUENCES
The following is the opinion of Miller & Holguin of Los
Angeles, California, relating to United States federal income tax
consequences of the exchange of Old Notes for Exchange Notes as of
the date hereof. The opinion below is based upon the Internal
Revenue Code of 1986, as amended (the "Code"), applicable Treasury
regulations, judicial authorities and published rulings of the
Internal Revenue Service (the "Service"), all as currently in
effect. Such authorities may be repealed, revoked or modified so as
to result in federal income tax consequences different from those
discussed below. There can be no assurance that the Service will
not take a contrary view, and no ruling from the Service has been
or will be sought. Legislative, judicial or administrative changes
or interpretations may be forthcoming that could alter or modify the
statements and conclusions set forth herein. Any such changes or
interpretations may or may not be retroactive and could affect the
tax consequences to holders.
An exchange of Old Notes for Exchange Notes will not constitute
a taxable event to holders for United States federal income tax
purposes. Consequently, no gain or loss will be recognized by a
holder upon receipt of an Exchange Note. The holding period of the
Exchange Note will include the holding period of the Old Note and
the basis of the Exchange Note will be the same as the basis of the
Old Note immediately before the Exchange.
EACH PROSPECTIVE PURCHASER SHOULD CONSULT HIS OR HER TAX
ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES OF THE EXCHANGE OF OLD
NOTES FOR EXCHANGE NOTES.
THE EXCHANGE
An exchange of Old Notes for Exchange Notes should be treated
as a "non-event" for federal income tax purposes because the Old
Notes should not be considered to differ materially in kind or
extent from the Exchange Nots. As a result, holder who exchange
their Old Notes for Exchange Notes should not recognize any income,
gain or loss for federal income tax purposes and the Exchange Notes
should be treated as if they had been issued on the date the Old
Notes were issued.
There should be no federal income tax consequences of the
Exchange Offer to non-exchanging holders.
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own
account pursuant to the Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any resale of such Exchange
Notes. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with
resales of Exchange Notes received in exchange for Old Notes where
such Old Notes were acquired as a result of market-making activities
or other trading activities. Other broker-dealers cannot
participate in the Exchange Offer. Sun World has agreed that it
will make this Prospectus, as amended or supplemented, available to
any broker-dealer for use in connection with any such resale. In
addition, until___________________, 1997, all dealers effecting
transactions in the Exchange Notes may be required to deliver a
prospectus.
Sun World will not receive any proceeds from any sale of
Exchange Notes by broker-dealers. Exchange Notes received by
broker-dealers for their own account pursuant to the Exchange Offer
may be sold from time to time in one or more transactions in the
over-the-counter market, in negotiated transactions, through the
writing of options on the Exchange Notes or a combination of such
methods of resale, at market prices prevailing at the time of
resale, at prices related to such prevailing market prices or
negotiated prices. Any such resale may be made directly to
purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such Exchange Notes. Any
broker-dealer that resells Exchange Notes that were received by it
for its own account pursuant to the Exchange Offer and any broker or
dealer that participates in a distribution of such Exchange Notes
may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of Exchange Notes
and any commission or concessions received by any such persons may
be deemed to be underwriting compensation under the Securities Act.
The Letter of Transmittal states that, by acknowledging that it will
deliver and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of
the Securities Act.
After the Exchange Date, Sun World will promptly send
additional copies of this Prospectus and any amendment or supplement
to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. Sun World has agreed to pay all
expenses incident to the Exchange Offer other than commissions or
concessions of any brokers or dealers and will indemnify the holders
of the Old Notes (including any broker-dealers) against certain
liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
Certain legal matters in connection with the issuance of the
securities offered hereby will be passed upon for Sun World and the
Guarantors by Miller & Holguin, attorneys at law, Los Angeles,
California.
EXPERTS
The consolidated financial statements of Cadiz as of
December 31, 1996 and March 31, 1996 and for the nine month period
ended December 31, 1996 and for each of the two years in the period
ended March 31, 1996 and the consolidated financial statements of
Sun World as of December 31, 1996 and September 13, 1996 and for the
period January 1, 1996 through September 13, 1996 and September 14,
1996 through December 31, 1996 included in this Prospectus have been
so included in reliance on the report of Price Waterhouse LLP,
independent accountants, given on the authority of said firm as
experts in auditing and accounting.
The consolidated financial statements of Sun World as of
December 31, 1995 and 1994 and for the years then ended which are
included in this Prospectus have been so included in reliance on the
report (which report expresses an unqualified opinion and includes
an explanatory paragraph referring to Sun World's bankruptcy and
reorganization) of Deloitte & Touche LLP, independent auditors,
given upon their authority as experts in accounting and auditing.
INDEX OF DEFINED TERMS
Set forth below are certain defined terms used throughout the
Prospectus. Reference is made to the Prospectus for a full disclosure
of all such terms. See also "Description of Exchange Notes-Certain
Definitions" on page 87 of the Prospectus for certain defined terms and
the full disclosure of such terms used in the Indenture dated as of
April 16, 1997 between Sun World and IBJ Schroder Bank & Trust Company.
Defined Term Section Where Defined Page
- ---------------------- ---------------------------------- ------
Affiliate Transaction Description of Exchange Notes-
Certain Covenants. . . . . . . . . . . .77
Agent Bank Description of Indebtedness-
Intercreditor Agreement. . . . . . . . .96
Amendment Cadiz Obligations-Equity Placements. . . .40
Ansbacher Liquidity and Capital Resources. . . . . .40
Asset Sale Description of Exchange Notes-
Certain Covenants. . . . . . . . . . . .68
Asset Sale Offer Description of Exchange Notes-
Certain Covenants. . . . . . . . . . . .72
Asset Sale Offer Amount Description of Exchange Notes-
Certain Covenants. . . . . . . . . . . .72
Asset Sale Offer Period Description of Exchange Notes-
Certain Covenants. . . . . . . . . . . .72
Asset Sale Purchase Date Description of Exchange Notes-
Certain Covenants. . . . . . . . . . . .72
Available Amount Description of Exchange Notes-
Certain Covenants. . . . . . . . . . . .71
Bankruptcy Code Certain Bankruptcy Limitations . . . . . .14
Cadiz Prospectus . . . . . . . . . . . . . . . . i
Cadiz Guarantee Prospectus . . . . . . . . . . . . . . . . i
Description of Exchange Notes-
Guarantees . . . . . . . . . . . . . . .68
Cadiz Property Narrative Description of Business-
Water Resource Development-
Cadiz Water Transfer and Storage
Project. . . . . . . . . . . . . . . . .48
Cadiz Ranch Certain Relationships and Related
Transactions - Sun World. . . . . . . . 64
Cal Act Risks Associated with Business of
Cadiz-Environmental Regulation
& Risk . . . . . . . . . . . . . . . . .18
Cautionary Statements Disclosure Regarding Forward-Looking
Statements . . . . . . . . . . . . . . .iv
CERCLA Secured Lenders Under Environmental
Laws . . . . . . . . . . . . . . . . . .15
Certificated Securities Description of Exchange Notes-Book-
Entry, Delivery and Form . . . . . . . .85
Change of Control Description of Exchange Notes-
Certain Covenants. . . . . . . . . . . .70
Change of Control Offer Description of Exchange Notes-
Certain Covenants. . . . . . . . . . . .70
Change of Control
Offer Period Description of Exchange Notes-
Certain Covenants. . . . . . . . . . . .70
Change of Control
Payment Description of Exchange Notes-
Certain Covenants. . . . . . . . . . . .70
Change of Control
Purchase Date Description of Exchange Notes-
Certain Covenants. . . . . . . . . . . .70
Closing Date Description of Exchange Notes-
Book-Entry, Delivery and Form. . . . . .85
Code United States Federal Tax Consequences . .96
Collateral Proceeds Description of Exchange Notes-
Certain Covenants. . . . . . . . . . . .71
Commission Available Information. . . . . . . . . . iii
Company Management's Discussion and Analysis
of Financial Condition and Results
of Operations. . . . . . . . . . . . . .31
Covenant Defeasance Description of Exchange Notes-Legal
Defeasance . . . . . . . . . . . . . . .83
Credit Agricole Liquidity and Capital Resources. . . . . .39
Debt Refinancing Liquidity and Capital Resources . . . . .39
Depositary Description of Exchange Notes-
Book-Entry, Delivery and Form. . . . . .85
Depositary's Indirect
Participants Description of Exchange Notes-
Book-Entry, Delivery and Form. . . . . .85
Depositary Participants Description of Exchange Notes-
Book-Entry, Delivery and Form. . . . . .85
EDGAR Available Information. . . . . . . . . . iii
Effectiveness Target
Date Description of Exchange Notes-
Registration Rights; Liquidated
Damages. . . . . . . . . . . . . . . . .87
EIR/EIS Risks Associated with Business of
Cadiz-Potential Adverse
Effect of Rail-Cycle Project on Cadiz. .18
Legal Proceedings. . . . . . . . . . . . .51
Eligible Institution Tender Procedure . . . . . . . . . . . . .21
EPA Risks Associated with Business of
Cadiz-Environmental Regulation & Risk. .18
Excess Proceeds Description of Exchange Notes - Certain
Covenants. . . . . . . . . . . . . . . .72
Exchange Act Available Information. . . . . . . . . . iii
Exchange Agent Expiration Date; Extension;
Termination; Amendments. . . . . . . . .21
Exchange Date Prospectus . . . . . . . . . . . . . . . iii
Expiration Date; Extension;
Termination; Amendments. . . . . . . . .21
Exchange Notes Prospectus . . . . . . . . . . . . . . . . i
The Exchange Offer . . . . . . . . . . . . 4
Exchange Offer Prospectus . . . . . . . . . . . . . . . . i
Expiration Date Prospectus . . . . . . . . . . . . . . . . i
The Exchange Offer-Expiration Date . . . . 4
Expiration Date; Extension;
Termination; Amendments. . . . . . . . .21
Fidelity Principal Stockholders . . . . . . . . . .63
FIL Principal Stockholders . . . . . . . . . .63
FMR Principal Stockholders . . . . . . . . . .63
Global Note Description of Exchange Notes-
Book-entry, Delivery and Form. . . . . .85
Global Note Holder Description of Exchange Notes-
Book-entry, Delivery and Form. . . . . .85
Guarantors Prospectus . . . . . . . . . . . . . . . iii
Description of Exchange Notes-
Ranking & Security . . . . . . . . . . .66
Health Department Risks Associated with Business of
Cadiz-Environmental Regulation
& Risk. . . . . . . . . . . . . . . . .18
Indenture The Exchange Offer-Effect on
Holders of Notes . . . . . . . . . . . . 5
Description of Exchange Notes-General. . .66
Indirect Participants Description of Exchange Notes-
Book-Entry, Delivery and Form. . . . . .85
ING Liquidity and Capital Resources. . . . . .40
Initial Purchaser The Exchange Offer . . . . . . . . . . . . 4
Intercreditor Agreement Description of Indebtedness-
Intercreditor Agreement. . . . . . . . .96
Issuer Description of Exchange Notes-General. . .66
ITC Management - Cadiz Directors and
Executive Officers. . . . . . . . . . . 56
John Hancock Liquidity and Capital Resources. . . . . .39
L.H. Friend Certain Relationships and Related
Transactions . . . . . . . . . . . . . .65
Legal Defeasance Description of Exchange Notes-Legal
Defeasance and Covenant Defeasance. . . .83
License Description of Indebtedness-
Intercreditor Agreement. . . . . . . . .96
Liquidated Damages Description of Exchange Notes-
Registration Rights; Liquidated
Damages. . . . . . . . . . . . . . . . .87
MCLS Risks Associated with Business of
Cadiz-Environmental Regulation
& Risk. . . . . . . . . . . . . . . . .18
MS Group Principal Stockholders . . . . . . . . . .63
MSAM Principal Stockholders . . . . . . . . . .63
Certain Relationships and Related
Transactions . . . . . . . . . . . . . .64
Non-Collateral
Proceeds Description of Exchange Notes-Certain
Covenants. . . . . . . . . . . . . . . .71
Notes Prospectus . . . . . . . . . . . . . . . . i
Description of Notes-General . . . . . . .66
Offering Selected Financial Data. . . . . . . . . . 8
Old Notes Prospectus . . . . . . . . . . . . . . . . i
The Exchange Offer . . . . . . . . . . . . 4
Participants Description of Exchange Notes-
Book-Entry, Delivery and Form. . . . . .85
Piute Project Narrative Description of Business-
Water Resource Development-Piute
and Other Transfer & Storage Projects. .48
PORTAL Prospectus . . . . . . . . . . . . . . . .ii
Proceeds Prospectus. . . . . . . . . . . . . . . . i
Rabobank Liquidity and Capital Resources. . . . . .39
Rail-Cycle Project Risks Associated with Business of
Cadiz-Potential Adverse Effect of
Rail-Cycle Project on Cadiz. . . . . . .18
Legal Proceedings. . . . . . . . . . . . .51
Registrar Exchange Agent . . . . . . . . . . . . . .25
Registration Default Description of Exchange Notes-
Registration Rights; Liquidated
Damages . . . . . . . . . . . . . . . .87
Registration Rights
Agreement The Exchange Offer-Effect on
Holders of Notes . . . . . . . . . . . . 5
Registration Statement Available Information. . . . . . . . . . iii
Related Transactions Selected Financial Data. . . . . . . . . . 8
Releases Interests Description of Exchange Notes-
Possession, Use and Release
of Collateral. . . . . . . . . . . . . .81
Replacement Assets Description of Exchange Notes-Certain
Covenants. . . . . . . . . . . . . . . .71
Restricted Payments Description of Exchange Notes-Certain
Covenants. . . . . . . . . . . . . . . .73
Securities Act Prospectus . . . . . . . . . . . . . . . .ii
Series A Preferred Liquidity and Capital Resources-
Cadiz Obligations-Equity Placements. . .40
Certain Relationships & Other Related
Transactions . . . . . . . . . . . . . .64
Series B Preferred Liquidity and Capital Resources-Cadiz
Obligations-Equity Placements. . . . . .40
Series C Preferred Liquidity and Capital Resources-
Cadiz Obligations-Equity Placements. . .40
Series A Conversion
Price Liquidity and Capital Resources-Cadiz
Obligations-Equity Placements . . . . . 40
Series B/C Conversion
Price Liquidity and Capital Resources-Cadiz
Obligations-Equity Placements. . . . . .41
Service United States Federal Tax Consequences . .96
Shelf Registration
Statement The Exchange Offer-Purpose of
the Exchange Offer . . . . . . . . . . .20
Subsidiary Guarantor Prospectus . . . . . . . . . . . . . . . . i
Sun World Prospectus . . . . . . . . . . . . . . . . i
Sun World Acquisition Prospectus Summary-Sun World
Acquisition. . . . . . . . . . . . . . . 1
Surviving Entity Description of Exchange Notes-Certain
Covenants-Merger,
Consolidation, or Sale of Assets . . . .78
Transfer Restricted
Securities Description of Exchange Notes-
Registration Rights; Liquidated
Damages. . . . . . . . . . . . . . . . .86
Transferor Terms & Conditions of the Letter of
Transmittal. . . . . . . . . . . . . . .23
Trust Indenture Act Description of Exchange Notes-General. . .66
Trustee Description of Exchange Notes-General. . .66
US Act Risks Associated with Business of Cadiz-
Environmental Regulation & Risk. . . . .18
Valuation Date Description of Exchange Notes-Possession,
Use and Release of Collateral. . . . . .81
INDEX TO FINANCIAL STATEMENTS
Index to Unaudited Financial Statements of Cadiz Land Company, Inc. for
the six months ended June 30, 1997 and 1996:
Consolidated Statement of Operations..............................F-3
Consolidated Balance Sheet........................................F-5
Consolidated Statement of Cash Flows..............................F-7
Consolidated Statement of Redeemable Preferred Stock,
Preferred Stock, Common Stock and Other Stockholders' Equity....F-8
Notes to the Consolidated Financial Statements....................F-9
Index to Audited Financial Statements of Cadiz Land Company, Inc.
for the nine months ended December 31, 1996 and the years ended
March 31, 1996 and 1995:
Report of Independent Accountants...................................F-13
Consolidated Balance Sheet..........................................F-14
Consolidated Statement of Cash Flows................................F-16
Consolidated Statement of Operations................................F-17
Consolidated Statement of Redeemable Preferred Stock,
Preferred Stock, Common Stock and Other Stockholders' Equity.......F-18
Notes to the Consolidated Financial Statements......................F-20
Index to Audited Financial Statements of Sun World International, Inc.
for the period September 14, 1996 through December 31, 1996.
Report of Independent Accountants...................................F-43
Consolidated Balance Sheet..........................................F-44
Consolidated Statement of Operations and Accumulated Deficit........F-45
Consolidated Statement of Cash Flows................................F-46
Notes to Consolidated Financial Statements..........................F-47
Index to Audited Financial Statements of Sun World International, Inc.
for the period January 1, 1996 through September 13, 1996:
Report of Independent Accountants....................................F-58
Consolidated Balance Sheet...........................................F-59
Consolidated Statement of Operations & Accumulated Deficit...........F-60
Consolidated Statement of Cash Flows.................................F-61
Notes to the Consolidated Financial Statements.......................F-62
Index to Audited Financial Statements of Sun World International, Inc.
for the years ended December 31, 1995 and 1994:
Independent Auditors' Report.........................................F-79
Consolidated Balance Sheets..........................................F-80
Consolidated Statements of Operations and Accumulated Deficit........F-81
Consolidated Statements of Cash Flows................................F-82
Notes to Consolidated Financial Statements...........................F-83
CONSOLIDATED FINANCIAL STATEMENTS
OF
CADIZ LAND COMPANY, INC.
For the Six Months Ended June 30, 1997 and June 30, 1996
Unaudited
Cadiz Land Company, Inc.
Condensed Consolidated Statement of Operations (unaudited)
For the Three Months Ended June 30, 1997 1996
------ ------
($ in thousands except per share data)
Revenues $ 25,656 $ 82
------- -------
Costs and expenses:
Cost of sales 20,153 508
Landfill prevention activities 176 127
General and administrative 3,135 737
Depreciation and amortization 1,812 258
------- -------
Total costs and expenses 25,276 1,630
------- -------
Operating profit (loss) 380 (1,548)
Interest expense, net 3,949 439
------- -------
Net loss (3,569) (1,987)
Less: Preferred stock dividends (766) -0-
------- -------
Net loss applicable to common stock (4,335) (1,987)
======= =======
Net loss per common share $ (.15) $ (.10)
======= ========
Weighted average shares outstanding 29,000 19,300
======= =======
See accompanying notes to the consolidated financial statements.
Cadiz Land Company, Inc.
Condensed Consolidated Statement of Operations (unaudited)
For the Six Months Ended June 30, 1997 1996
----- -----
($ in thousands except per share data)
Revenues $ 30,543 $ 403
------- -------
Costs and expenses:
Cost of sales 25,171 1,371
Landfill prevention activities 380 1,375
General and administrative 5,826 1,365
Depreciation and amortization 2,345 528
------- -------
Total costs and expenses 33,722 4,639
------- -------
Operating loss (3,179) (4,236)
Interest expense, net 7,786 892
------- -------
Net loss (10,965) (5,128)
Less: Preferred stock dividends (1,204) -0-
------- -------
Net loss applicable to common stock $ (12,169) $ (5,128)
======= =======
Net loss per common share $ (.46) $ (.27)
======= =======
Weighted average shares outstanding 26,400 18,800
======= =======
See accompanying notes to the consolidated financial statements.
Cadiz Land Company, Inc.
Condensed Consolidated Balance Sheet (unaudited)
June 30, December 31,
Assets ($ in thousands): 1997 1996
-------- -------
Current assets:
Cash and cash equivalents $ 2,801 $33,307
Accounts receivable, net 20,264 7,533
Assets held for sale 900 6,534
Inventories 27,056 14,121
Prepaid expenses and other 1,203 1,225
------- -------
Total current assets 52,224 62,720
Investment in partnerships 5,662 6,122
Property, plant and equipment, net 140,299 137,897
Land held for development 12,746 12,671
Water rights and transfer and
storage projects 5,073 4,705
Other assets 5,638 1,695
Excess purchase price over net
assets acquired, net 4,864 4,980
------- -------
$ 226,506 $ 230,790
======= =======
See accompanying notes to the consolidated financial statements.
Cadiz Land Company, Inc.
Condensed Consolidated Balance Sheet (unaudited)
Liabilities, Stock and Other
Stockholders' Equity June 30, December 31,
($ in thousands) 1997 1996
------ -------
Current liabilities:
Revolving credit facility $16,910 $ -0-
Accounts payable 19,476 7,435
Accrued liabilities 5,947 5,172
Long-term debt, current portion 1,171 4,753
Other current liabilities 150 591
------- -------
Total current liabilities 43,654 17,951
Long-term debt 127,749 149,111
Deferred income taxes 4,347 4,347
Other liabilities 4,364 4,209
Commitments and contingencies
Series A redeemable preferred stock -
$.01 par value ($1,000 liquidation
value); 60,000 shares authorized;
shares issued and outstanding -
none at June 30, 1997
and 27,431 at December 31, 1996 -0- 27,431
Preferred stock - $.01 par value;
40,000 shares authorized,
shares issued and outstanding -
90 at June 30, 1997 and
340 shares at December 31, 1996 - -
Common stock - $.01 par value;
45,000,000 shares
authorized; shares issued and
outstanding - 32,361,116 at
June 30, 1997 and 23,445,868 at;
December 31, 1996 324 234
Additional paid-in capital 119,304 88,574
Accumulated deficit (73,236) (61,067)
------- -------
$ 226,506 $ 230,790
======== =======
See accompanying notes to the consolidated financial statements.
Cadiz Land Company, Inc.
Condensed Consolidated Statement of Cash Flows (unaudited)
For the Six Months Ended June 30, 1997 1996
---- -----
($ in thousands)
(unaudited)
Cash flows from operating activities:
Net loss from operations $ (10,965) $ (5,128)
Adjustments to reconcile net loss from
operations to cash used for operating
activities:
Depreciation and amortization 2,345 955
Issuance of shares for
professional services 357 -0-
Interest capitalized to debt 315 293
Provision for loss on disposal
of assets 146 -0-
Share of partnership operations (579) -0-
Changes in operating assets and
liabilities,net of acquisition
of Sun World:
Increase in accounts receivable (12,731) (436)
Increase in inventories (11,195) -0-
Decrease in prepaid expenses
and other 22 220
Increase in accounts payable 12,041 378
Increase in accrued liabilities 1,274 -0-
Decrease in other liabilities (286) -0-
------- -------
Net cash used for operating
activities (19,256) (3,718)
------- -------
Cash flows from investing activities:
Additions to property, plant and equipment (1,519) (686)
Proceeds from disposal of property,
plant and equipment 2,798 -0-
Additions to developing crops (2,605) -0-
Partnership distributions 1,039 -0-
Decrease in other assets 1,305 -0-
Acquisition of Sun World,
net of cash acquired -0- (1,590)
------- -------
Net cash provided by (used for)
investing activities 1,018 (2,276)
------- -------
Cash flows from financing activities:
Net proceeds from issuance of stock 1,328 5,687
Proceeds from issuance of debt 115,080 112
Principal payments on long-term debt (140,338) (162)
Proceeds from short-term borrowings 35,071 301
Payments on short-term borrowings (18,161) -0-
Costs for debt issuance (5,248) -0-
------- -------
Net cash (used for) provided
by financing activities (12,268) 5,938
------- -------
Net decrease in cash and cash equivalents (30,506) (56)
Cash and cash equivalents,
beginning of period 33,307 2,600
------- -------
Cash and cash equivalents, end of period $ 2,801 $ 2,544
======= =======
See accompanying notes to the consolidated financial statements.
Cadiz Land Company, Inc.
Condensed Consolidated Statement of Redeemable Preferred Stock,
Preferred Stock, Common Stock and Other Stockholders' Equity (unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended June 30, 1997
($ in thousands)
Redeemable Preferred
Preferred Stock Stock
Shares Amount Shares Amount
------- --------- ------- ------
<S> <C> <C> <C> <C>
Balance as of December 31, 1996 27,431 $ 27,431 340 $ -
Exercise of stock options
and warrants
Issuance of stock for refinancing
Issuance of stock for services
Conversion of redeemable
preferred stock to common
stock (27,431) (27,431)
Conversion of preferred stock
to common stock (250) -
Dividends paid in common
stock on conversion of
preferred stock
Accrued dividends on
preferred stock
Net loss
--------- ------- ------- -------
Balance as of June
30, 1997 -0- $ -0- 90 $ -
========= ======== ======= ========
<CAPTION>
Additional
Common Stock Paid-in Accumulated
Shares Amount Capital Deficit
--------- --------- --------- --------
<S> <C> <C> <C> <C>
Balance as of December 31, 1996 23,445,868 $ 234 $ 88,574 $ (61,067)
Exercise of stock options
and warrants 563,500 6 1,322
Issuance of stock for refinancing 30,000 140
Issuance of stock for services 50,000 1 216
Conversion of redeemable
preferred stock to common
stock 7,314,917 74 27,358
Conversion of preferred stock
to common stock 598,279 6 94
Dividends paid in common stock
on conversion of preferred stock 358,552 3 1,600
Accrued dividends on
preferred stock (1,204)
Net loss (10,965)
--------- ------- ------- --------
Balance as of June 30, 1997 32,361,166 $ 324 $119,304 $(73,236)
========== ======= ======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
CADIZ LAND COMPANY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
- ------------------------------
The Condensed Consolidated Financial Statements have been prepared by the
Company without audit and should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's latest Form
10-K for the nine month period ended December 31, 1996. The foregoing
Consolidated Financial Statements include all adjustments, consisting only of
normal recurring adjustments which the Company considers necessary for a fair
presentation. The results of operations for the six months ended June 30, 1997
are not necessarily indicative of the results to be expected for the full
fiscal year.
See Note 2 to the Condensed Consolidated Financial Statements included in the
Company's latest Form 10-K for a discussion of the Company's accounting
policies.
In February 1997, the Financial Accounting Standards Board issued Statements
of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"),
which is effective for fiscal years ending after December 14, 1997. SFAS 128
replaces disclosure of primary and fully diluted earnings per share with basic
and diluted earnings per share. Application of SFAS 128 is not expected to
have a material effect on the Company's earnings per share for the quarters or
the six months ended June 30, 1997 or 1996.
NOTE 2 - LONG-TERM DEBT
- ------------------------
On April 16, 1997 Sun World completed a private placement of $115.0 million in
secured notes (the "Sun World Notes"). The Sun World Notes were sold through
Smith Barney Inc., as initial purchaser, to "qualified institutional buyers"
(as defined in Rule 144A under the Securities Act of 1933, as amended (the
"Securities Act")) and a limited number of institutional "accredited investors"
(as defined in the Securities Act). The proceeds from the issuance of the Sun
World Notes, when combined with Sun World's existing cash and cash made
available under a $30 million Revolving Credit Facility entered into by Sun
World concurrently with the issuance of the Sun World Notes, were used to
retire Sun World's existing indebtedness to John Hancock Mutual Life Insurance
Company ("John Hancock") and Caisse Nationale de Credit Agricole, acting
through its Grand Cayman branch ("Credit Agricole") as well as the Company's
existing indebtedness to Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A.
("Rabobank").
SUN WORLD OBLIGATIONS
Sun World's $30.0 million Revolving Credit Facility matures in one year and is
guaranteed by the Company. Amounts borrowed under the Revolving Credit
Facility will accrue interest at either prime plus 1.50% or LIBOR plus 2.50%
at Sun World's election, with an additional .50% payable for advances on
eligible inventory above specified levels.
The Sun World Notes, which were issued in the principal amount of $115.0
million on April 16, 1997 and will mature on April 15, 2004, accrue interest
at the rate of 11-1/4% per annum. Interest only is payable semi-annually on
April 15 and October 15 of each year, commencing October 15, 1997. The Sun
World Notes are secured by a first lien on substantially all of the assets
of Sun World and its subsidiaries, other than growing crops, crop inventories
and accounts receivable and proceeds thereof, which secure the Revolving
Credit Facility.
The Sun World Notes are also secured by the guarantees of Coachella Growers,
Inc., Sun Desert, Inc., Sun World Brands, Sun World Management Corporation,
Sun World/Rayo, Agri-Land Realty, Inc., Big Valley Leasing, Inc., Dinuba
Packing Corporation, Pacific Farm Service, Inc., SFC Marketing Corporation,
Sun Harvest, Inc., Sun World Avocado and Sun World Export, Inc. (collectively,
the "Sun World Subsidiary Guarantors") and by the Company. The Company also
pledged all of the stock of Sun World. Sun World and the Sun World Subsidiary
Guarantors are all direct and indirect wholly-owned subsidiaries of the
Company. The guarantees by the Sun World Subsidiary Guarantors are full,
unconditional, and joint and several. Additionally, management believes
that the direct and indirect non-guarantor subsidiaries of Cadiz are
inconsequential, both individually and in the aggregate, to the financial
statements of the Company for all periods presented.
NOTE 2 - LONG-TERM DEBT - (Continued)
- -------------------------------------
SUMMARIZED FINANCIAL INFORMATION
Summarized consolidated financial information for Sun World is as follows
(in thousands):
June 30, 1997
------------
Current assets $ 51,684
Noncurrent assets 142,908
Current liabilities 42,399
Noncurrent liabilities 126,506
For the Six
Months Ended
June 30, 1997
--------------
Revenues $ 30,416
Cost of sales (25,184)
Operating loss (1,065)
Net loss (7,673)
Combined summarized financial information for the Sun World Subsidiary
Guarantors is as follows: (in thousands):
June 30, 1997
---------------
Current assets $ -0-
Noncurrent assets 8,964
Current liabilities 1
Noncurrent liabilities 100
For the Six
Months Ended
June 30, 1997
--------------
Share of net income of equity investee $ 579
Separate financial statements for Sun World and each of the Sun World
Subsidiary Guarantors are not presented as management has determined they would
not be material to investors.
NOTE 3 - PREFERRED AND COMMON STOCK
- ------------------------------------
During the six months ended June 30 1997, 150 shares of Series B Preferred
Stock ("Series B Preferred") were converted into 356,768 shares of common
stock. Additionally, 100 Shares of Series C Preferred Stock ("Series C
Preferred") were converted into 241,511 shares of common stock. Dividends
paid in common stock on conversion of the Series B Preferred and Series C
Preferred totalled 9,884 shares of common stock.
On May 7, 1997, the Company mandatorily converted all of the 27,431
outstanding shares of the Series A Redeemable Preferred Stock ("Series A
Preferred") into 7,314,917 shares of common stock. As a condition to such
conversion, the Company paid holders of the Series A Preferred one year of
dividends (less the amount of any dividends previously paid). Dividends
were paid in the form of 348,668 shares of common stock issued during the
six months ended June 30, 1997.
During the six months ended June 30, 1997, previously outstanding stock
options of 563,500 were exercised resulting in gross proceeds to the Company of
$1,328,000. In addition, 50,000 shares were issued to the Company's Chief
Executive Officer upon the achievement of certain performance criteria and
30,000 shares were issued to a former lender for refinancing arrangements.
CONSOLIDATED FINANCIAL STATEMENTS
OF
CADIZ LAND COMPANY, INC.
For the Nine Months Ended December 31, 1996
and Each of the
Two Years Ended March 31, 1996
With Report of Independent Accountants
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of
Cadiz Land Company, Inc.
In our opinion, the consolidated balance sheet and the related consolidated
statements of operations, of redeemable preferred stock, preferred stock,
common stock and other stockholders' equity and of cash flows present
fairly, in all material respects, the financial position of Cadiz Land
Company, Inc. and its subsidiaries at December 31, 1996 and March 31, 1996,
and the results of their operations and their cash flows for the nine
months ended December 31, 1996 and for each of the two years in
the period ended March 31, 1996, in conformity with generally
accepted accounting principles. These financial statements are
the responsibility of the Company's management; our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits of these statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for the opinion expressed above.
/s/ Price Waterhouse LLP
- ------------------------------
PRICE WATERHOUSE LLP
Los Angeles, California
March 7, 1997, except for
Notes 7 and 13, which are
as of April 16, 1997
CADIZ LAND COMPANY INC.
Consolidated Balance Sheet
($ in thousands)
December 31 March 31
1996 1996
--------- ---------
Assets
Current assets:
Cash and cash equivalents $ 33,307 $ 5,153
Accounts receivable, net 7,533 443
Assets held for sale 6,534 -0-
Inventories 14,121 266
Prepaid expenses and other 1,225 190
---------- --------
Total current assets 62,720 6,052
Investment in partnerships 6,122 -0-
Property, plant and equipment, net 137,897 11,681
Land held for development 12,671 12,236
Water rights and transfer and
storage projects 4,705 2,496
Other assets 1,695 1,043
Excess purchase price over
net assets acquired, net 4,980 5,155
------------ ------------
$ 230,790 $ 38,663
=========== ==========
See accompanying notes to the consolidated financial statements.
CADIZ LAND COMPANY, INC.
Liabilities, Stock and Other Stockholders' Equity
($ in thousands)
December 31 March 31
1996 1996
------- ---------
Current liabilities:
Accounts payable $ 7,435 $ 1,772
Accrued liabilities 5,172 521
Long-term debt, current portion 4,753 17,617
Other current liabilities 591 -0-
-------- --------
Total current liabilities 17,951 19,910
Long-term debt 149,111 -0-
Deferred income taxes 4,347 -0-
Other liabilities 4,209 -0-
Commitments and contingencies
Series A redeemable preferred stock -
$.01 par value ($1,000 liquidation
value); 60,000 shares authorized;
27,431 shares issued and outstanding
at December 31, 1996 27,431 -0-
Preferred stock - $.01 par value
40,000 shares authorized; 340
shares issued and outstanding at
December 31, 1996 - -0-
Common stock - $.01 par value; 45,000,000
shares authorized; shares issued and
outstanding - 23,445,868 at December 31,
1996 and 19,247,611 at March 31, 1996 234 192
Additional paid-in capital 88,574 72,957
Accumulated deficit (61,067) (54,396)
---------- ---------
$ 230,790 $ 38,663
========= =========
See accompanying notes to the consolidated financial statements.
CADIZ LAND COMPANY, INC.
Consolidated Statement of Cash Flows
($ in thousands)
Nine Months Ended Year Ended
December 31, March 31,
1996 1996 1995
------ ------ ------
Cash flows from operating activities:
Net loss from continuing
operations $ (5,997) $ (8,487) $ (4,591)
Adjustments to reconcile net
loss from continuing operations
to cash used for continuing
operating activities:
Depreciation and amortization 1,654 1,909 1,450
Extraordinary gain on debt
settlement -0- -0- (115)
Interest capitalized to debt 481 474 734
Share of partnership operations (838) -0- -0-
Changes in operating assets and
liabilities, net of acquisition
of Sun World:
Decrease (increase) in accounts
receivable 11,367 (379) (198)
Decrease in inventories 1,000 -0- -0-
(Increase) decrease in prepaid
expenses and other (428) 13 (158)
(Decrease) increase in accounts
payable (7,208) 734 (12)
Increase in accrued liabilities 577 -0- -0-
(Decrease) in other liabilities (674) -0- -0-
------- ------- --------
Net cash used for continuing
operating activities (66) (5,736) (2,890)
Net cash provided by discontinued
operating activities -0- -0- 57
------- ------- -------
Net cash used for operating
activities (66) (5,736) (2,833)
------- -------- --------
Cash flows from investing activities:
Additions to property, plant
and equipment (405) (358) (1,506)
Proceeds from disposal of property,
plant and equipment 12,415 -0- -0-
Land purchase and development (490) (574) (315)
Water transfer and storage projects (343) (732) (1,547)
Additions to developing crops (187) -0- -0-
Partnership distributions 140 -0- -0-
Acquisition of Sun World, net
of cash acquired (4,474) (693) -0-
-------- -------- --------
Net cash provided by (used for)
investing activities 6,656 (2,357) (3,368)
--------- -------- --------
Cash flows from financing
activities:
Net proceeds from issuance
of stock 37,761 10,292 2,307
Principal payments on long-term
debt (16,428) (177) (530)
Proceeds from short-term debt 347 677 2,470
Principal payments on short-term
debt (17) -0- -0-
Dividends paid on conversion of
preferred stock (99) -0- -0-
---------- ---------- -----------
Net cash provided by financing
activities 21,564 10,792 4,247
Net increase (decrease) in cash and
cash equivalents 28,154 2,699 (1,954)
Cash and cash equivalents,
beginning of period 5,153 2,454 4,408
---------- ---------- ---------
Cash and cash equivalents,
end of period $ 33,307 $ 5,153 $ 2,454
========= ========= ========
See accompanying notes to the consolidated financial statements.
CADIZ LAND COMPANY, INC.
Consolidated Statement of Operations
(In thousands except per share data)
Nine Months Ended Year Ended
December 31, March 31,
1996 1996 1995
------ ------ ------
Revenues $ 23,780 $ 1,441 $ 543
-------- -------- -------
Costs and expenses:
Cost of sales 17,725 1,649 506
Resource development 1,133 1,680 1,039
Landfill prevention activities 394 1,919 -0-
General and administrative 4,924 1,826 1,525
Depreciation 864 833 737
Amortization 175 234 234
-------- -------- --------
Total costs and expenses 25,215 8,141 4,041
-------- -------- --------
Operating loss (1,435) (6,700) (3,498)
Interest expense, net 5,203 1,787 1,208
-------- -------- -------
Loss before income taxes and
extraordinary item (6,638) (8,487) (4,706)
Income tax benefit (641) -0- -0-
--------- -------- --------
Loss before extraordinary item (5,997) (8,487) (4,706)
Extraordinary item - gain on
debt settlement -0- -0- 115
--------- --------- --------
Net loss (5,997) (8,487) (4,591)
Less: Preferred stock dividends (674) -0- -0-
Imputed dividend on
preferred stock (2,451) -0- -0-
----------- --------- --------
Net loss applicable to
common stock $ (9,122) $ (8,487) $ (4,591)
======== ======== ========
Net loss per common share:
Loss before
extraordinary item $ (.44) $ (.48) $ (.29)
Extraordinary item -0- -0- .01
----------- ----------- ----------
Net loss per common share $ (.44) $ (.48) $ (.28)
========== ========= ========
Weighted average shares
outstanding 20,500 17,700 16,500
========== ========= ========
See accompanying notes to the consolidated financial statements.
CADIZ LAND COMPANY, INC.
Consolidated Statement of Redeemable Preferred Stock,
Preferred Stock, Common Stock and Other Stockholders' Equity
For the Nine Months Ended December 31, 1996 and the Two Years Ended
March 31, 1996
($ in thousands)
Redeemable Addi-
Preferred Preferred Common tional Accumu-
Stock Stock Stock Paid-in lated
Shares Amount Shares Amount Shares Amount Capital Deficit
------ ------ ------ ------ ---------- ------- ------- -------
Balance
as of
March 31,
1994 -0- $ -0- -0- $ -0- 15,430,864 $ 154 $ 59,890 $(41,318)
Issuance
of shares
for
professional
services 110,000 1 384
Issuance
of stock
warrants
for
services 121
Exercise
of stock
options
and
warrants 1,447,590 15 2,292
Net loss ( 4,591)
------ ----- ----- ------ ---------- ----- ------- -------
Balance
as of
March 31,
1995 -0- -0- -0- -0- 16,988,454 170 62,687 (45,909)
Issuance
of shares
in
connection
with
private
placements 2,114,157 21 9,911
Exercise
of stock
options 145,000 1 359
Net loss (8,487)
----- ------ ----- ------ ---------- ---- ------- ------
Balance
as of
March 31,
1996 -0- -0- -0- -0- 19,247,611 192 72,957 (54,396)
Exercise
of stock
options and
warrants 335,000 3 939
Common stock
issued for
acquisition
of Sun World 1,153,908 12 3,576
Gross proceeds
from private
placement of
redeemable
preferred
stock 26,131 26,131
Preferred
shares
issued for
acquisition
fees 1,500 1,500
Net proceeds
from
private
placements
of preferred
stock 1,300 10,688
Cash
dividends
paid on
conversion
of preferred
stock (99)
Dividends
paid in
common
stock
on
conversion
of
preferred
stock 28,777 127 (127)
Accrued
dividends
on
preferred
stock (448)
Conversion
of
redeemable
preferred
to common
stock (200) (200) 53,332 1 199
Conversion
of
preferred
stock
to common
stock (960) 2,672,240 26 (26)
Issuance
of stock
warrants
for
services 114
Net loss (5,997)
------ ------- ------ ------- -------- ----- -------- --------
Balance
as of
December
31,
1996 27,431 $27,431 340 $ - 23,445,868 $ 234 $88,574 $ (61,067)
======= ======= ====== ==== ========== ===== ======= =========
See accompanying notes to the consolidated financial statements.
CADIZ LAND COMPANY, INC.
NOTES TO THE CONSOIDATED FINANCIAL STATEMENTS
NOTE 1 - DESCRIPTION OF BUSINESS
- ---------------------------------
The long-term strategy of Cadiz Land Company, Inc. (the
"Company") is to acquire and develop water-related land and
agricultural assets. The Company has created an integrated
and complimentary portfolio of landholdings, water resources,
and agricultural operations located within central and
southern California which either possess sizable assured
supplies of water or can, in future years, utilize water
supplied from other Company properties. Management believes
that, with both the increasing scarcity of water supplies in
California and the increasing demand for water, the Company's
access to water will provide it with a competitive advantage
both as a major agricultural concern and as a supplier of
water which will lead to continued appreciation in the value
of the Company's portfolio.
On September 13, 1996, the Company acquired all of the
stock of a reorganized Sun World International, Inc. ("Sun
World") pursuant to a consensual plan of reorganization
(Debtors' Modified Fourth Amended Consolidated Plan of
Reorganization dated June 3, 1996 (Modified)) which was
confirmed by the U.S. Bankruptcy Court at a hearing on July
12, 1996. Sun World and certain subsidiaries of Sun World had
filed voluntary petitions for relief under Chapter 11 of the
Bankruptcy Code on October 3, 1994 after debt restructuring
negotiations with Sun World's existing lenders failed.
With its acquisition of Sun World, the Company has become
a vertically integrated agricultural company. Sun World owns
and farms approximately 17,300 acres in two major growing
areas of California, the Southern San Joaquin Valley and the
Coachella Valley. Fresh produce, including table grapes, tree
fruit, peppers and watermelon are marketed, packed and shipped
to food wholesalers and retailers located throughout the
United States and to over 30 foreign countries. As of
December 31, 1996, Sun World owned and operated five cold
storage and/or packing facilities located in California.
In addition, the acquisition of Sun World provided the
Company valuable water rights throughout the central and
southern valleys of California. The Company's landholdings,
which now total approximately 56,300 acres, are located
adjacent to the major aqueduct systems of central and southern
California, and in close proximity to the Colorado River. The
Company expects to utilize these resources to participate in
a broad variety of water transfer and storage projects,
including the storage and transfer of surplus water for public
agencies which require supplemental sources of water.
Although the development and management activities of the
Company are currently focused on agricultural operations
(primarily through its wholly-owned subsidiary, Sun World) and
water resource development, the Company will continue to seek
to develop and manage its land, water and agricultural
resources for their best use.
NOTE 2 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries,
Sun World (since September 14, 1996), Cadiz Valley Development
Corporation, Inc., and Southwest Fruit Growers Limited
Partnership, a limited partnership ("SWFG") in which the
Company is the general partner and has an approximate 66.3
percent partnership interest. SWFG owns a total of 680 acres
of table grape vineyards and 2,560 acres of undeveloped land
at Cadiz, California. Allocable losses incurred through the
year ended March 31, 1991 served to eliminate the minority
interest in SWFG for accounting purposes. All material
intercompany balances and activity have been eliminated from
the consolidated financial statements.
CHANGE IN YEAR END AND RECLASSIFICATIONS
As a result of the Company's acquisition of Sun World,
the Company changed its fiscal year end from March 31 to
December 31 in order to align the Company's year end with that
of Sun World. Prior to the acquisition of Sun World, the
Company had utilized an unclassified balance sheet
(eliminating the distinction between current assets and long-term
assets and current liabilities and long-term
liabilities). The financial statements set forth herein
utilize a classified balance sheet, thus requiring certain
reclassifications to be made to the prior period balances to
conform with the December 31, 1996 presentation.
The following unaudited information for the nine months
ended December 31, 1995, which does not include the operations
of Sun World, is presented for informational purposes only
(dollars in thousands):
Nine months
ended
December 31, 1995
---------------
Revenues $ 1,120
Net loss $ (5,346)
Net loss per common share $ (0.31)
USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
those estimates.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost.
The Company capitalizes direct and certain indirect costs
of planting and developing orchards and vineyards during the
development period, which varies by crop and ranges from three
to seven years. Depreciation commences in the year commercial
production is achieved.
Permanent land development costs, such as acquisition
costs, clearing, initial leveling costs and other costs
required to bring the land into a suitable condition for
general agricultural use, are capitalized and not depreciated
since, by definition, these costs have an indeterminate useful
life.
Depreciation is provided using the straight-line method
over the estimated useful lives of the assets, generally ten
to forty-five years for land improvements and buildings, three
to twenty-five years for machinery and equipment, and ten to
thirty years for permanent crops.
LAND HELD FOR DEVELOPMENT
Land held for development consists of approximately
37,000 acres of undeveloped land in Cadiz, Piute and other
desert regions of California. Land held for development is
stated at cost. Cost includes those that are directly related
to the acquisition of the acreage, such as the cost to
purchase, commissions, real estate taxes and legal and other
professional fees.
INVESTMENT IN PARTNERSHIPS
Sun World has investments in various partnerships which
are accounted for using the equity method. Sun World's two
principal partnerships are American Sunmelon and Sun Date,
both of which are 50% owned. American Sunmelon is engaged in
proprietary development, production, and marketing of seedless
watermelon seed. Sun Date is engaged in the processing of
dates. In September 1996, Sun Date and Sun World entered into a
marketing agreement whereby Sun World agreed to sell the dates
produced by Sun Date. During the period September 14, 1996
through December 31, 1996, Sun World made payments to Sun Date
totaling $869,000, primarily related to date crop proceeds.
ASSETS HELD FOR SALE
Certain Sun World assets were identified as either idle
facilities, fallow land, or farming operations which have
experienced consistently low returns on investment. As of
December 31, 1996, assets totaling $6,534,000 have been
identified and are included in the accompanying consolidated
balance sheet at the lower of cost or fair value less
estimated costs to sell. The Company reasonably believes
these assets can be sold within one year.
SUPPLEMENTAL CASH FLOW INFORMATION
The Company considers all short-term deposits with an
original maturity of three months or less to be cash
equivalents. The Company invests its excess cash in deposits
with major international banks and, therefore, bears minimal
risk. Such investments are stated at cost, which approximates
fair value, and are considered cash equivalents for purposes
of reporting cash flows. At December 31, 1996, cash and cash
equivalents totalled $33,307,000, of which $453,000
represented the balance remaining in the trust account for the
payment of unsecured creditors' claims as determined during
the reorganization of Sun World.
Cash paid for interest during the nine months ended
December 31, 1996 and the fiscal years ending March 31, 1996,
and 1995 was $3,892,000, $455,000 and $6,000, respectively.
WATER RIGHTS AND TRANSFER AND STORAGE PROJECTS
All water rights and transfer and storage projects are
stated at cost. All costs directly attributable to the
development of the water transfer projects are being
capitalized by the Company. These costs, which are expected
to be recovered through future revenues, consist of drilling
costs, hydrological costs, consulting fees for various
engineering, environmental and feasibility studies, and other
professional and legal fees.
INVENTORIES
Growing crops, pepper seed, and materials and supplies
are stated at the lower of cost, on a first-in, first-out
(FIFO) basis, or market. Growing crops inventory includes
direct costs and an allocation of indirect costs.
REVENUE RECOGNITION
The Company recognizes crop sale revenue after harvest
and delivery to customers. Packing revenues are recognized as
units are packed. Marketing commission revenues are
recognized at the time of product shipment.
RESEARCH AND DEVELOPMENT
Sun World incurs costs to research and develop new
varieties of proprietary products. Research and development
costs are expensed as incurred. Such costs were approximately
$120,000 during the period September 14, 1996 through December
31, 1996.
EXCESS OF PURCHASE PRICE OVER NET ASSETS ACQUIRED
As a result of a merger in May 1988 between two companies
which eventually became known as Cadiz Land Company, Inc.,
excess of purchase price over net assets acquired in the
amount of $7,006,000 was recorded. This amount is being
amortized at the rate of $234,000 annually on a straight-line
basis over thirty years. Accumulated amortization was
$2,026,000 and $1,851,000 at December 31, 1996 and March 31,
1996, respectively.
IMPAIRMENT
The Company annually evaluates its long-lived assets,
including intangibles, for potential impairment. When
circumstances indicate that the carrying amount of the asset
may not be recoverable, as demonstrated by estimated future
cash flows, an impairment loss would be recorded based on fair
value.
INCOME TAXES
Income taxes are provided for using an asset and
liability approach which requires the recognition of deferred
tax assets and liabilities for the expected future tax
consequences of temporary differences between the financial
statement and tax bases of assets and liabilities at the
applicable enacted tax rates. A valuation allowance is
provided when it is more likely than not that some portion or
all of the deferred tax assets will not be realized.
NET LOSS PER COMMON SHARE
Net loss per common share is computed by dividing the net
loss, after deduction for preferred dividends either accrued
or imputed, if any, by the weighted average shares
outstanding. As described in Note 10, the terms for
conversion of the Series B and C preferred stock issued during
the nine months ended December 31, 1996 afforded the holders
a conversion price lower than the market price of the common
stock at the time of issuance, in order to recognize the sales
and other market restrictions of the unregistered common stock
to be issued upon conversion. The difference between the
conversion price and market price has been reported as an
imputed dividend for purposes of calculating net loss per
common share although no assets of the Company will ever be
expended. The imputed dividend of $2,451,000 had the effect
of increasing the loss per share for the nine months ended
December 31, 1996 by $0.11. It should be noted that the
imputed dividend has been given no other accounting
recognition in the financial statements of the Company for
that period and there will be no recognition given in the
future.
NOTE 3 - ACQUISITION OF SUN WORLD INTERNATIONAL, INC.
- -----------------------------------------------------
On September 13, 1996, the Company acquired all of the
stock of a reorganized Sun World. The acquisition of Sun
World was accounted for under the purchase method of
accounting. Accordingly, the results of operations of Sun
World have been included in the consolidated financial
statements since the date of acquisition. The total purchase
price consisted of the following: (i) $179 million of assumed
bankruptcy related obligations including $156 million of
restructured secured debt with Sun World's existing lenders
(of which $5.5 million was paid by Cadiz concurrent with the
acquisition), (ii) $11 million of ongoing trade and other
accrued liabilities which were assumed by Cadiz, (iii) $3.2
million of direct acquisition costs, including 1,500 shares of
Redeemable Series A Preferred Stock valued at $1,000 per
share; and (iv) cash and stock of approximately $40 million,
including a $15 million capital contribution to Sun World
which was made with the intent of eliminating the requirement
for Sun World to have any additional debt facilities beyond
those owed to its existing secured creditors. The effect of
allocating the total purchase price to the net assets acquired
based on their estimated fair values is summarized as follows
(dollars in thousands):
Cash $ 32,113
Assets held for sale 18,049
Other current assets 45,225
Investments in partnerships 5,424
Property, plant and equipment 129,050
Other assets 3,409
-------
Total assets 233,270
-------
Prepetition bankruptcy
claims payable (13,164)
Other current liabilities (15,870)
Long-term debt (151,783)
Other liabilities (9,170)
-------
Total liabilities 189,987
-------
Net assets acquired $ 43,283
=======
No goodwill was recognized as a result of the acquisition.
The unaudited pro forma summary for the nine months ended
December 31, 1996 and the year ended March 31, 1996 reflect
combined results of operations of the Company and Sun World as
if the acquisition had occurred as of April 1, 1995. Since
prior to the current fiscal period, the fiscal year ends of
the Company and Sun World differed, for pro forma purposes,
the Sun World results of operations have been adjusted to
conform to the Cadiz reporting periods. The pro forma
adjustments include, among others, decreased interest expense
as a result of the refinancing of Sun World's existing secured
lenders and increased depreciation as a result of the purchase
price allocation. The pro forma adjustments do not reflect the
elimination of charges directly attributable to the Chapter 11
bankruptcy proceedings which are not expected to recur
subsequent to the emergence from bankruptcy effective
September 13, 1996. See footnote (a) for a more detailed
explanation of charges directly attributable to Sun World's
emergence from bankruptcy. The following pro forma financial
information is presented for informational purposes only and
is not necessarily indicative of the results of operations
that would have occurred if the acquisition had been
consummated as of the beginning of the periods presented, nor
is it necessarily indicative of the future operating results
of the Company.
The unaudited pro forma financial information is as
follows (in thousands except per share data):
Nine months ended Year ended
December 31, 1996 March 31, 1996
------------------ ------------
Actual Pro Forma Actual Pro Forma
-------- -------- -------- -----------
Revenue $ 23,780 $ 98,010 $ 1,441 $ 118,292
Net loss $(5,997) $ (2,158)(a) $ (8,487) $ (13,811)(a)
Less: Preferred
stock dividends $ (674) $ (1,828) $ -0- $ (2,438)
Imputed dividend
on preferred
stock $ (2,451) $ -0- $ -0- $ (1,959)
--------- --------- --------- ---------
Net loss
applicable to
common stock $ (9,122) $ (3,986) $ (8,487) $(18,208)
========== ========= ========== =========
Net loss per
common share $ (.44) $ (.18)(a) $ (.48) $ (.97)(a)
=========== ========== ========== ==========
Weighted-average
shares
outstanding 20,500 21,600 17,700 18,800
========= ========= ========== ==========
- -----------------------
(a) Includes for the nine months ended December 31, 1996 and the
year ended March 31, 1996, charges incurred by Sun World
totaling $4.8 million and $11.3 million, respectively, which
were directly attributable to the Chapter 11 bankruptcy
proceedings and are non-recurring in nature. Exclusion of
the non-recurring charges would have resulted in a pro forma
net income (loss) per share of $.04 and ($.37) for the nine
months ended December 31, 1996 and the year ended March 31,
1996, respectively.
NOTE 4 - ACCOUNTS RECEIVABLE
- ----------------------------
Accounts receivable consisted of the following (dollars in
thousands):
December 31, March 31,
1996 1996
-------- -------
Trade receivables $ 3,632 $ 443
Due from unaffiliated
growers 1,153 -0-
Other 3,228 -0-
------ --------
8,013 443
Less allowance
for doubtful accounts 480 -0-
------ ------
$ 7,533 $ 443
======= ========
Substantially all domestic receivables are from large
national and regional supermarket chain stores and produce
brokers and are unsecured. Amounts due from unaffiliated
growers represent receivables for services (harvest, haul
and pack) provided on behalf of growers under agreement with
Sun World and are recovered from proceeds of product sales.
Other receivables primarily include lemon crop sales,
by-product sales and accounts receivable from joint venture
partners.
Approximately $3.8 million of sales made by Sun World
from September 14, 1996 through December 31,1996 are
attributable to one national retailer.
NOTE 5 - INVENTORIES
- --------------------
Inventories consisted of the following (dollars in
thousands):
December 31, March 31,
1996 1996
------- --------
Growing crops $ 10,299 $ -0-
Pepper seed, net 2,018 -0-
Harvested product 267 -0-
Materials and
supplies 1,537 266
------- -------
$ 14,121 $ 266
======== ======
NOTE 6 - PROPERTY, PLANT AND EQUIPMENT
- ---------------------------------------
Property, plant and equipment consisted of the
following (dollars in thousands):
December 31, March 31,
1996 1996
---------- ----------
Land $ 41,358 $ 2,364
Permanent crops 71,966 8,498
Land improvements 1,839 1,851
Buildings 19,148 852
Machinery and
equipment 9,013 1,064
-------- --------
143,324 14,629
Less accumulated
depreciation (5,427) (2,948)
-------- -------
$137,897 $ 11,681
======== ========
NOTE 7 - LONG-TERM DEBT
- ------------------------
Management estimates that the fair value of its
long-term debt approximates the carrying value as the
preponderance of the obligations contain variable interest
rates or were recently issued at market rates as part of the
acquisition of Sun World. At December 31, 1996 and March
31, 1996, the carrying amount of the Company's outstanding
debt is summarized as follows (dollars in thousands):
December 31, March 31,
1996 1996
------- -------
Cadiz obligations:
Senior term bank loan, interest
payable monthly, variable
interest rate based upon LIBOR
plus 1% (6.34% at
December 31, 1996) $ 9,446 $ 8,630
Subordinated term bank loan,
interest payable
monthly, interest at 4.81% 9,100 9,100
Other 88 105
Debt discount (124) (218)
-------- --------
18,510 17,617
Sun World obligations:
Term insurance company
loan due in variable
installments through
September 13, 2006,
interest at 10.60% 77,092 -0-
Term bank loan, interest
payable monthly with
principal due in variable
installments through
September 13, 2006,
variable interest rate
based upon prime or LIBOR
(8.60% at December 31, 1996) 53,284 -0-
Note payable to insurance
company, quarterly
installments of $93
(including interest),
due September 13, 2006,
interest at 7.75% 2,531 -0-
Note payable to supplier,
monthly installments of
$104 (including interest),
due March 1, 1998,
interest at 10.00% 1,458 -0-
Note payable to finance
company, monthly
installments of $18
(including interest),
due July 1, 2002,
interest at 7.50% 989 -0-
-------- --------
153,864 17,617
Less current portion (4,753) (17,617)
--------- ---------
$ 149,111 $ -0-
=========== ===========
Annual maturities of long-term debt outstanding, excluding
$124,000 representing the unamortized portion of warrants,
on December 31, 1996 are as follows: 1997 - $4,877,000;
1998 - $24,253,000; 1999 - $9,374,000; 2000 - $11,398,000;
2001 - $11,410,000, 2002 and thereafter - $92,676,000.
CADIZ OBLIGATIONS
As of December 31, 1996, the Company's obligations to
Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A.
("Rabobank") and Henry Ansbacher & Co. Limited ("Ansbacher")
were approximately $9.1 million and $9.4 million,
respectively, both of which were to mature on January 31,
1997.
The Company reached an agreement with Rabobank which
extended the maturity date of the Company's debt facilities
with Rabobank to April 30, 1997. Additionally, the Company
reached an agreement with Rabobank which extended the
period, to April 30, 1997, in which the Company has the
ability to exercise its right to obtain two one-year
extensions. The Company has also reached an agreement with
Ansbacher whereby the maturity date of the Company's debt
facilities with Ansbacher has been extended to April 30,
1997. ING Baring (U.S.) Capital Corporation ("ING") has
purchased the $9.4 million Ansbacher debt obligation
effective March 31, 1997. The maturity date of such
obligation has been extended to April 30, 1998 with interest
at a rate of LIBOR plus 200 basis points payable at LIBOR
only semi-annually, with the remaining accrued interest
added to principal. ING granted to Cadiz the right to
obtain two one-year extensions. In connection with this
transaction, ING received warrants to purchase 75,000 shares
of Cadiz' common stock at an exercise price equal to the
market price at May 1, 1997, the time such warrants become
exercisable. Upon the exercise of the first and second
extension, the interest rate will be further adjusted and
Cadiz will be required to issue additional warrants to ING.
The Company continues to evaluate possible alternative
means of repayment and/or refinancing of the Rabobank
facility. The determination of which funding mechanism (or
combination) the Company will utilize will be evaluated on
an ongoing basis by the Company in consultation with an
investment banking firm which has been retained by the
Company. Based upon the Company's intent and ability to
refinance the Rabobank and Ansbacher debt facilities, as
evidenced by the agreements reached with Rabobank and ING,
as discussed above, the debt facilities have been classified
as long-term as of December 31, 1996. In addition to
repayment of the Rabobank facility, the Company is
considering a financing during 1997 which would be used to
refinance the existing primary debt facilities of Sun World
with terms which management would view as more favorable to
the Company and Sun World.
The terms of the Company's two one-year extension options
for the Rabobank debt are essentially the same as those
agreed upon by the parties in September 1996, except the
date required to exercise the first extension has been
changed from January 31, 1997 to April 30, 1997. As before,
it is a condition to such extension that the total
outstanding debt to Rabobank does not exceed $8,500,000 at
the time such extension becomes effective. Upon exercise of
each of the first and second extensions, the Company would
be required to pay to Rabobank certain fees. The interest
rate to be in effect during each extension period will be at
Rabobank's cost of funds plus one and one quarter percent
(1-1/4%). In September 1996, when Rabobank agreed to extend
the maturity date of this debt to April 30,1997, the
interest rate was adjusted to Rabobank's cost of funds plus
one and one quarter percent (1-1/4%) beginning February 1,
1997. As part of the September 1996 extension, the Company
paid an initial commitment fee of $150,000 and issued 30,000
new warrants to purchase the Company's common stock at $0.05
per share exercisable for five years following the date of
issuance and extended the expiration date of the outstanding
Rabobank warrants to December 31, 2000. The total value of
the warrants issued in September 1996, $114,000, has been
recorded as debt discount which is being amortized over the
remaining term of the debt. Currently, ING and Rabobank
hold senior and subordinated deeds of trust, respectively,
on substantially all of the Company's non-Sun World related
property.
Prior to the extensions discussed above, on March 15,
1995, the Company entered into an agreement whereby
Ansbacher provided a loan facility aggregating $3,000,000.
Additionally, Ansbacher agreed to accrue and capitalize
interest on the outstanding principal amount of these
advances through January 1997. In consideration for this
agreement, Ansbacher received 110,000 shares of common stock
valued at $3.50 per share. The Company also issued to
Rabobank 35,000 warrants to purchase the Company's common
stock at $.05 per share exercisable for three years
following the date of issuance. The total value of these
warrants, $121,000, has been recorded as a debt discount and
is being amortized over the remaining term of the debt. In
addition, Rabobank agreed to subordinate to Ansbacher's
senior security interests.
Prior to the extensions and the March 1995 arrangement
discussed above, the Company's outstanding obligations to
Rabobank and Ansbacher (collectively, the "Banks") were
governed by the January 1994 financing arrangements whereby
interest rates on outstanding debt to the Banks were fixed
until January 1997. Interest on the Ansbacher portion was
accrued and capitalized through January 31, 1997. Rabobank
interest was paid quarterly subsequent to December 1994,
through draw downs against a letter of credit provided by
Ansbacher for that purpose. The amount drawn under the line
of credit totalled $816,015 at December 31, 1996. In
addition, as a result of the January 1994 financing
arrangements, Rabobank returned and canceled 533,000
outstanding warrants in exchange for 175,000 new warrants to
purchase the Company's common stock at $0.05 per share
exercisable for three years following the date of issuance.
The total value of these warrants, $604,000, has been
recorded as a debt discount and was amortized over the
remaining term of the debt. In addition, Ansbacher received
100,000 shares of common stock as an arrangement fee and
50,000 shares of common stock as an advisory fee valued at
$3.50 per share. The Company also agreed to convert
$770,000 of debt to Ansbacher into 220,000 shares of common
stock.
In June 1994, the Company retired a note payable in the
amount of $249,000 to an individual at a discounted amount,
resulting in an extraordinary gain of $115,000. The note,
which originated in 1985, was scheduled to be retired with a
balloon payment in December 1996.
SUN WORLD OBLIGATIONS
Sun World's financing agreements are collateralized by
substantially all of Sun World's assets. The term
insurance company loan and term bank loan (collectively the
"Term Loans") provide for principal payments in variable
amounts at the end of March, August and December of each
year. Additionally, the Term Loans provide for interest
deferral, at the Company's option, for the Company's peak
seasonal need for working capital during the months of April
to July, which are payable at the end of August and
September.
The Company's financing arrangements require, among other
terms, minimum amounts, as defined, of working capital and
tangible net worth and minimum ratios of current assets to
current liabilities and indebtedness to net worth.
Additionally, the financing arrangements with Sun World's
secured lenders include covenants which restrict the
Company's ability to receive distributions from Sun World,
whose net assets totaled approximately $42,000,000 at
December 31, 1996.
NOTE 8 - INCOME TAXES
- ---------------------
As of December 31, 1996, the Company has a net operating
loss (NOL) carryforward of approximately $60,808,000 for
federal and $35,534,000 for state income tax purposes. Such
carryforwards expire in varying amounts through the year
2012. For financial reporting purposes, the tax benefit
resulting from utilization of such NOL carryforward will be
applied to reduce the excess of purchase price over net
assets acquired.
In accordance with the Tax Reform Act of 1986, NOL
utilization may be subject to an annual limitation. When
there is a change in ownership of more than 50 percent (as
defined) of a corporation, the use of any NOL existing at
the date of the change of ownership is limited annually to
an amount defined by law. Based upon such formula, use of
approximately $25,268,000 of the federal NOL is limited to
approximately $720,000 per year. An additional $20,153,000
of federal NOL is limited to approximately $4,508,000 per
year for an ownership change that occurred in September
1993. The remaining $15,387,000 of federal NOL is currently
available to offset federal taxable income in any future
years. No annual limitations apply to the state NOL
carryforwards which expire in various amounts through the
year 2000.
A reconciliation of the provision (benefit) for income
taxes to the statutory federal income tax rate is as follows
(dollars in thousands):
Nine Months
Ended Year Ended
December 31, March 31,
------------ ----------
1996 1996 1995
----- ---- -----
Expected federal income
tax benefit at 34% $ (1,660) $ (2,886) $ (1,561)
Net operating loss
carryforward for
financial reporting
purposes 1,790 2,405 1,468
Amortization 60 80 79
Utilization of net
operating losses (696) -0- -0-
Other nondeductible
expenses (135) 401 14
--------- -------- ---------
$ (641) $ -0- $ -0-
========== ========= ==========
Deferred taxes are recorded based upon differences between
the financial statement and tax basis of assets and
liabilities and available carryforwards. Temporary
differences and carryforwards which gave rise to a
significant portion of deferred tax assets and liabilities
as of December 31, 1996 and March 31, 1996 were as follows
(in thousands):
December 31, March 31,
1996 1996
---- -----
Deferred tax liabilities:
Net fixed asset
basis difference $ 5,786 $ -0-
Purchase accounting adjustment 440 -0-
State taxes 336 -0-
Other 4 -0-
-------- ---------
Total deferred tax liablities 6,566 -0-
-------- ---------
Deferred tax assets:
Net operating losses 23,943 21,136
Reserve for notes receivable 1,239 -0-
Capitalized legal fees 892 -0-
Basis difference in water rights 99 -0-
Net basis difference in
partnership investments (4,734) (4,337)
State taxes 1,478 (407)
Other 237 283
------- ---------
Total deferred tax assets 23,154 16,675
Valuation allowance
for deferred tax asset (20,935) (16,675)
-------- ---------
Total deferred tax assets, net 2,219 -0-
-------- ---------
Net deferred tax liability $ 4,347 $ -0-
========= =========
NOTE 9 - EMPLOYEE BENEFIT PLANS
- -------------------------------
In December 1994, the Company established a 401(k) Plan
for all employees of Cadiz. This plan contains no
eligibility requirements and contributions by the Company
are at the option of the Company on a year-to-year basis.
No contributions by the Company to this plan have been made
to-date.
Sun World established a 401(k) Plan for its salaried
employees on January 1, 1996. Employees must work 1,000
hours and have completed one year of service to be eligible
to participate in this plan.
In addition, Sun World maintains a defined contribution
pension plan covering substantially all of its employees not
covered by a collective bargaining agreement, with at least
one year of service and who have worked at least 1,000
hours. Contributions are 2% of each covered employee's
salary. There were no contributions made for the period
from September 14, 1996 to December 31, 1996. For those
hourly employees covered under a collective bargaining
agreement, contributions are made to a multi employer
pension plan in accordance with negotiated labor contracts
and are generally based on the number of hours worked.
NOTE 10 - PREFERRED AND COMMON STOCK
- ------------------------------------
During the fiscal year ended March 31, 1996, the
Company completed private placements of 2,114,157 shares of
its common stock, resulting in gross proceeds of
$10,199,000. During the nine months ended December 31,
1996, the Company issued (i) $27.6 million of newly
authorized Convertible Series A Redeemable Preferred Stock
("Series A Redeemable Preferred"); (ii) $10.0 million of
newly authorized 6% Convertible Series B Preferred Stock
("Series B Preferred"); and (iii) $3.0 million of newly
authorized 6% Convertible Series C Preferred Stock ("Series
C Preferred").
A description of each series of preferred stock
follows:
SERIES A REDEEMABLE PREFERRED
Shares of Series A Redeemable Preferred were not
convertible when issued, but became convertible into shares
of common stock, at the option of the holder, on November 12
1996 upon the filing by the Company of an Amendment to its
Certificate of Incorporation ("Amendment") increasing the
Company's authorized common stock from 24,000,000 to
45,000,000, thereby allowing the Company to reserve
sufficient shares of common stock for issuance upon
conversion. Concurrently with the filing of the Amendment,
the conversion price ("Series A Conversion Price") was set
at $3.75. Holders are entitled to cumulative dividends
payable semi-annually in cash or common stock at a rate of
six percent (6%) per annum. During the nine months ended
December 31, 1996, 200 shares of Series A Redeemable
Preferred were converted at the Series A Conversion Price
resulting in the issuance of 53,332 common shares. The
Series A Redeemable Preferred is also mandatorily
convertible in full at the option of the Company at any time
prior to six months following the filing of the Amendment at
the Series A Conversion Price provided that, as a condition
to such conversion, the Company pay to holders one full
year's worth of dividends (less the amount of any dividends
theretofore paid). Holders are entitled to a mandatory
liquidation preference equal to the initial purchase price
of $1,000 per share if conversion has not occurred prior to
September 2001. The Company will exercise its mandatory
conversion right during April 1997 which will result in the
issuance of 7,314,920 shares of common stock in May 1997 in
replacement of all Series A Redeemable Preferred. The
Series A Redeemable Preferred ranks senior and prior to the
Company's common stock and on a parity with any other class
or series of preferred stock. Except as provided by law,
holders are not entitled to vote upon any matter submitted
to a vote of the Company's stockholders.
SERIES B AND C PREFERRED
Shares of Series B and C Preferred were immediately
convertible upon issuance into shares of common stock, at
the option of the holder, at a price equal to the lower of
(a) $5.8125 per share or (b) eighty-five percent (85%) of
the average closing bid price over the ten-trading day
period ending on the day prior to the submission of any
conversion notice ("Series B/C Conversion Price"). Holders
are entitled to cumulative dividends payable upon conversion
or maturity in cash or common stock at a rate of six percent
(6%) per annum. The Company reserves the right to redeem
any shares of Series B or Series C Preferred for $11,765 per
share in cash by giving holders five days notice. Any
Series B or Series C Preferred shares outstanding one year
following issuance are mandatorily converted into common
stock at the Series B/C Conversion Price. Holders are
entitled to a liquidation preference equal to the initial
purchase price of $10,000 per share. During the nine months
ended December 31, 1996, 760 shares of Series B Preferred
and 200 shares of Series C Preferred were converted at the
Series B/C Conversion Price, resulting in the issuance of
2,627,240 common shares. The Series B and C Preferred rank
senior and prior to the Company's common stock and on a
parity with any other class or series of preferred stock.
Except as provided by law, holders are not entitled to vote
upon any matter submitted to a vote of the Company's
stockholders.
NOTE 11- STOCK-BASED COMPENSATION PLANS AND WARRANTS
- ----------------------------------------------------
STOCK OPTIONS AND WARRANTS
The Company issues options pursuant to a newly adopted
1996 Stock Option Plan (the "Plan") as well as options which
are not pursuant to a plan. The Plan provides for the
granting of up to 3,000,000 shares. All options, whether
under the Plan or not, are granted at a price not less than
100% of the fair market value at the date of option, have
vesting periods ranging from issuance date to three years,
have maximum terms ranging from three to five years and are
issued to directors, officers, consultants and employees of
the Company. During the nine months ended December 31,
1996, the Board of Directors of the Company granted options
to purchase 1,800,000 shares of the Company's common stock
at a weighted average fair value of $4.62 per share of which
1,350,000 options are conditional based upon terms of
employment and certain performance criteria.
Compensation cost for stock options is measured as the
excess, if any, of the quoted market price of the Company's
stock at the date of the grant over the amount an employee
must pay to acquire the stock. Had compensation cost for
these plans been determined using fair value, as explained
below, rather than the quoted market price, the Company's
net loss and loss per common share would have been reduced
to the following pro forma amounts (dollars in thousands):
Nine Months Year
Ended Ended
December 31, March 31,
1996 1996
----- -----
Net loss: As reported $ (5,997) $ (8,487)
Pro forma $ (6,655) $ (8,665)
Net loss
per common
share: As reported $ (.44)(a) $ (.48)
Pro forma $ (.48)(a) $ (.49)
- ------------------------------------
(a) After adjustment for accrued and imputed preferred
dividends during the nine months ended December 31,
1996 of $674 and $2,451, respectively.
The fair value of each option granted during the periods
reported was estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-
average assumptions used for the grants for the nine months
ended December 31, 1996 and the fiscal year ended March 31,
1996, respectively: risk free interest rate of 6.58% and
6.15%; expected life of expiration date less one year for
both periods; expected volatility of 52.68% and 53.87% and
no dividend yield.
The following table summarizes stock option activity for
the periods noted. All options listed below were issued to
officers, directors, employees and consultants.
Options Weighted-
Outstanding Average
Number Exercise Price
----------- --------------
Outstanding at March 31, 1994 1,801,890 $ 1.57
Granted 1,872,000 $ 4.48
Expired or cancelled (4,500) $ 4.63
Exercised (1,333,890) $ 1.49
------------
Outstanding at March 31, 1995 2,335,500 $ 3.95
Granted 607,500 $ 5.19
Expired or cancelled (7,000) $ 4.89
Exercised (145,000) $ 2.50
----------
Outstanding at March 31, 1996 2,791,000 $ 4.29
Granted 1,800,000 $ 4.62
Expired or cancelled (400,000) $ 5.50
Exercised (325,000) $ 2.79
---------
Outstanding at December 31, 1996 3,866,000(a) $ 4.44
========= =======
Options exercisable at
March 31, 1995 1,935,500 $ 4.07
========= =======
Options exercisable at
March 31, 1996 2,116,000 $ 4.34
========= =======
Options exercisable at
December 31, 1996 1,966,000 $ 4.30
========= =======
Weighted-average fair
value of options granted
during the nine-month
period ended
December 31, 1996 $ 4.62
=========
Weighted-average remaining
contractual life of options
outstanding at
December 31, 1996 3.2 years
==========
- -----------------------------
(a) Exercise prices vary from $1.25 to $5.50 and expiration
dates vary from January 1997 to September 2001.
Approximately 84% of the options outstanding at December 31,
1996 had an exercise price between $4.50 and $5.50 with a
weighted-average remaining contractual life of 3.6 years.
During the nine months ended December 31, 1996 and the
years ended March 31, 1996 and 1995, the Company issued
warrants of 30,000, 10,000 and 35,000 with weighted-average
exercise prices of $0.05, $3.55 and $0.05, respectively.
During the nine months ended December 31, 1996 and the year
ended March 31, 1995, 10,000 warrants with a weighted-average
exercise price of $3.55 and 113,700 warrants with a
weighted-average exercise price of $2.50 were exercised,
respectively. No warrants expired or were cancelled during
any of the three periods discussed. At December 31, 1996
there were 240,000 warrants outstanding all of which are
issued to Rabobank at an exercise price of $0.05 per share
and expire December 31, 2000. See Note 7 for further
discussion of these warrants.
RESTRICTED STOCK AWARD
Following the Sun World acquisition in 1996, the
Company's Chief Executive Officer was awarded a stock bonus
of 125,000 shares of restricted common stock at no cost.
The issuance of these shares is dependent, with respect to
50,000 shares, upon the achievement of certain performance
criteria. The remaining 75,000 shares are issuable in equal
annual installments over a three year period based upon the
continued employment of the officer. Compensation expense,
representing the market value at the date of grant, will be
recognized as earned over the period of service.
NOTE 12 - COMMITMENTS AND CONTINGENCIES
- ---------------------------------------
In 1995, Sun World entered into an agreement with its
major corrugated container supplier in connection with a
prepetition liability settlement. The settlement stipulated
that the original agreement to purchase containers from the
supplier would remain in effect until March 21, 1998 and
required the Company to issue a secured note payable to the
supplier (see Note 7). Thereafter, the original agreement
will automatically renew unless either party gives written
notice ninety days prior to the end of the renewal period.
In December 1995, the Company filed an action relative
to the proposed construction and operation of a landfill to
be located adjacent to the Company's Cadiz property (the
"Rail-Cycle Project"), with the Superior Court in San
Bernardino County, California. The action challenges the
various decisions by the County of San Bernardino relative
to the Rail-Cycle Project. Named in this action, in
addition to the County of San Bernardino, were the Board of
Supervisors of the County of San Bernardino, three
individual members of the Board of Supervisors, an employee
of the County and Rail-Cycle, L.P. whose general partner is
controlled by WMX Technologies, Inc. (formerly Waste
Management, Inc.). The Company alleges that the actions of
the County of San Bernardino did not comply with the
guidelines prescribed by the California Environmental
Quality Act and violated state planning and zoning laws.
The action seeks to set aside the county certification of
the EIR/EIS and approval of the proposed Rail-Cycle project.
The Company continues to believe the proposed Rail-Cycle
project, if constructed and operated as currently designed,
poses environmental risks both to the Company's agricultural
operations at Cadiz and to the groundwater basin underlying
the Cadiz property. Accordingly, the Company intends to
pursue a claim for damages against the County of San
Bernardino and Rail-Cycle and, therefore, the action also
seeks compensatory damages in excess of $75 million. The
action is currently in the discovery phase. The court has
set July 11, 1997 to commence a hearing on the Company's
land use and regulatory claims. A trial on the issue of the
Company's monetary damages will be scheduled at a later
date. The Company intends to continue vigorously prosecuting
its claims. The Company incurred $394,000 and $1,919,000
during the nine months ended December 31, 1996 and the year
ended March 31, 1996, respectively, in connection with this
matter.
In the normal course of its agricultural operations,
the Company handles, stores, transports and dispenses
products identified as hazardous materials. Regulatory
agencies periodically conduct inspections and, currently,
there are no pending claims with respect to hazardous
materials.
The Company is involved in other legal and
administrative proceedings and claims. In the opinion of
management, the ultimate outcome of each proceeding or all
such proceedings combined will not have a material adverse
impact on the Company's financial statements.
NOTE 13 - SUBSEQUENT EVENTS - DEBT ISSUANCE
- -------------------------------------------
On April 16, 1997 Sun World completed a private placement of $115.0
million in secured notes (the "Sun World Notes"). The Sun World Notes were
sold through Smith Barney Inc., as initial purchaser, to "qualified
institutional buyers" (as defined in Rule 144A under the Securities Act of
1933, as amended (the "Securities Act")) and a limited number of insititutional
"accredited investors" (as defined in the Securities Act). The proceeds from
the issuance of the Sun World Notes, when combined with Sun World's existing
cash and cash made available under a $30.0 million Revolving Credit Facility
entered into by Sun World concurrently with the issuance of the Sun World
Notes, were used to retire Sun World's existing indebtedness to John Hancock
Mutual Life Insurance Company ("John Hancock") and Caisse Nationale
de Credit Agricole, acting through its Grand Cayman branch ("Credit Agricole")
as well as the Company's existing indebtedness to Cooperatieve Centrale
Raiffeisen-Boerenleenbank B.A. ("Rabobank").
Sun World's $30.00 million Revolving Credit Facility matures in one year
and is guaranteed by the Company. Amounts borrowed under the Revolving Credit
Facility will accrue interest at either prime plus 1.5% or LIBOR plus 2.50%,
at Sun World's election, with an additional.50% payable for advances on
eligible inventory above specified levels.
The Sun World Notes, which were issued in the principal amount of $115.0
million on April 16, 1997 and will mature on April 15, 2004, accrue interest
at the rate of $11-1/4% per annum. Interest only is payable semi-annually on
April 15 and October 15 of each year, commencing October 15, 1997. The Sun
World Notes are secure by a first lien on substantially all of the assets of
Sun World and its subsidiaries, other than growing crops, crop inventories
and accounts receivable and proceeds thereof, which secure the Revolving
Credit Facility. The Sun World Notes are also secured by the guarantees,
which are full, unconditional, and joint and several, of Coachella Growers,
Inc., Sun Desert, Inc., Sun World Brands, Sun World Management Corporation,
Sun World/Rayo, Agri-Land Realty, Inc., Big Valley Leasing, Inc., Dinuba
Packing Corporation, Pacific Farm Service, Inc., SFC Marketing Corporation,
Sun Harvest, Inc., Sun World Avocado and Sun World Export, Inc.
(collectively, the "Sun World Subsidiary Guarantors") and
by the Company. The Company also pledged all of the stock of Sun World.
Sun World and the Sun World Subsidiary Guarantors are all direct and indirect
wholly-owned subsidiaries of the Company. Management believes the direct and
indirect non-guarantor subsidiaries of Cadiz are inconsequential, both
individually and in the aggregate, to the financial statements of the Company.
Further, separate financial statements of each of the Sun World Subsidiary
Guarantors are not presented as management has determined that they
would not be material to investors.
* * *
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
OF
SUN WORLD INTERNATIONAL, INC.
(A WHOLLY-OWNED SUBSIDIARY)
For the Period from September 14, 1996
to
December 31, 1996
With Report of Independent Accountants
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholder of Sun World International, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations and accumulated deficit and of cash
flows present fairly, in all material respects, the financial position of Sun
World International, Inc., a wholly-owned subsidiary of Cadiz Land Company,
Inc., and its subsidiaries (the Company), at December 31, 1996, and the
results of their operations and their cash flows for the period September 14,
1996 through December 31, 1996 in conformity with generally accepted
accounting principles. These financial statements are the responsibility of
the Company's management; our responsibility is to express an opinion on
these financial statements based on our audit. We conducted our audit of
these financial statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
/s/ PRICE WATERHOUSE LLP
- ---------------------------
PRICE WATERHOUSE LLP
Los Angeles, California
February 28, 1997, except
for Note 12, which is as of
April 16, 1997
SUN WORLD INTERNATIONAL, INC.
(A WHOLLY-OWNED SUBSIDIARY OF CADIZ LAND
COMPANY, INC.) AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
December 31,
1996
-----
ASSETS
Current assets:
Cash and cash equivalents $31,175
Accounts receivable, net 7,502
Inventories 14,114
Assets held for sale 6,534
Prepaid expenses and other 1,326
--------
Total current assets 60,651
Investment in partnerships 6,122
Property, plant and equipment, net 126,656
Other assets 3,566
--------
Total assets $196,995
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable $ 6,103
Accrued liabilities 3,659
Due to parent 332
Long term debt due in one year 4,235
Pre-petition bankruptcy claims payable 591
-------
Total current liabilities 14,920
Long term debt 131,119
Other liabilities 4,149
Deferred income taxes 4,347
Commitments and contingencies
Stockholder's equity:
Common stock, $.01 par value, 300,000 shares authorized;
42,000 shares issued and outstanding
Additional paid-in capital 43,283
Accumulated deficit (823)
--------
Total stockholder's equity 42,460
Total liabilities and stockholder's equity $196,995
See accompanying notes to the consolidated financial statements.
SUN WORLD INTERNATIONAL, INC. (A WHOLLY-OWNED SUBSIDIARY OF CADIZ LAND
COMPANY, INC.)
CONSOLIDATED STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
(Dollars in thousands)
September 14 to
December 31,
1996
---------
Revenues $ 22,502
Costs and expenses:
Cost of sales 16,396
General and administrative 2,929
Depreciation and amortization 266
--------
19,591
--------
Operating income 2,911
Other income (78)
Interest expense, net 3,812
-------
Loss before income taxes (823)
Income tax expense 0
-------
Net loss (823)
Accumulated deficit at September 14, 1996 0
---------
Accumulated deficit at December 31, 1996 $ (823)
=========
See accompanying notes to the consolidated financial statements.
SUN WORLD INTERNATIONAL, INC. (A WHOLLY-OWNED SUBSIDIARY OF CADIZ LAND
COMPANY, INC.)
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
September 14 to
December 31,
1996
Cash flows from operating activities:
Net loss $ (823)
Adjustments to reconcile net loss to cash provided
from operating activities:
Depreciation and amortization 266
Share of partnership operations (838)
Changes in operating assets and liabilities:
Decrease in accounts receivable, net 10,956
Decrease in due from parent 12,822
Decrease in inventories 741
Increase in prepaid expenses and other (111)
Decrease in accounts payable (6,093)
Decrease in accrued liabilities (17)
Decrease in other liabilities (33)
Decrease in deferred income taxes (641)
--------
16,229
--------
Decrease in pre-petition bankruptcy claims payable (12,573)
--------
Net cash provided from operating activities 3,656
--------
Cash flows from investing activities:
Additions to property, plant and equipment (378)
Additions to developing crops (187)
Partnership distributions 140
Increase in other assets (156)
Proceeds from disposal of property, plant and equipment 12,415
-------
Net cash provided from investing activities 11,834
-------
Cash flows from financing activities:
Payments of long-term debt (16,428)
-------
Net cash used in financing activities (16,428)
-------
Net decrease in cash and cash equivalents (938)
-------
Cash and cash equivalents at September 14, 1996 32,113
-------
Cash and cash equivalents at December 31, 1996 $31,175
=======
See accompanying notes to the consolidated financial statements.
SUN WORLD INTERNATIONAL, INC.
(A WHOLLY-OWNED SUBSIDIARY OF CADIZ LAND COMPANY, INC.)
Notes to Consolidated Financial Statements
Period From September 14, 1996 to December 31, 1996
1. NATURE OF OPERATIONS
Sun World International, Inc. ("SWII") and its subsidiaries (collectively
the "Company") own and farm approximately 18,000 acres in two major
growing areas of California, the Southern San Joaquin Valley and Coachella
Valley. Fresh produce, including table grapes, tree fruit, peppers and
watermelon are marketed, packed and shipped to food wholesalers and
retailers located throughout the United States and in certain foreign
countries. The Company has been an operating entity since 1975. However,
on September 13, 1996, a change in control resulted in the establishment
of a new basis of accounting, as described in Note 2. Accordingly, only
the period subsequent to the change in control is presented in these
financial statements.
Export sales accounted for approximately 21.7% of the Company's sales for
the period ended September 14, 1996 to December 31, 1996. As of December
31, 1996, the Company owned and operated five cold storage and/or packing
facilities located in California.
2. CHANGE IN CONTROL
On October 3, 1994, SWII and certain of its subsidiaries filed voluntary
petitions for relief under Chapter 11 of the Bankruptcy Code. Since that
date, the companies had been operating under bankruptcy protection and had
been negotiating with all parties to the bankruptcy proceedings in an
effort to develop a Plan of Reorganization (the "Plan"). On July 12,
1996, the Bankruptcy Court confirmed the Plan, which became effective on
September 13, 1996 (the "Effective Date"). Pursuant to the Plan, SWII,
Sun World, Inc., Coachella Growers and Sun Desert, Inc. (all wholly owned
subsidiaries of SWII) emerged from the Chapter 11 Bankruptcy proceedings
and 100% of SWII's stock (both preferred and common) was acquired by Cadiz
Land Company, Inc. ("Cadiz"). The Plan also provided for, among other
things, the cancellation of certain indebtedness in exchange for cash,
elimination of all intercompany debts, new indebtedness, issuance of new
equity securities, the discharge of other prepetition claims, the
cancellation of all prepetition ownership interests in the Company, the
settlement of certain claims and mutual releases of certain claims of the
Company and other persons or entities (including certain affiliated
persons of entities), the assumption or rejection of executory contracts
and unexpired leases to which the Company was a party, and the
establishment of procedures for the selection of a Board of Directors for
the Company. The Plan did not provide for the reorganization of the
estate or the resolution of outstanding third party claims and equity
interests for AAI Services, Inc., a wholly-owned subsidiary of SWII.
The Plan provided for a consolidation of the assets and liabilities of
SWII and its subsidiaries and pursuant to the Plan, SWII was merged into
Sun World, Inc. with the surviving corporation retaining the name of Sun
World International, Inc. All payments and distributions required by the
Plan to be made by SWII or any of its subsidiaries in respect of
prepetition claims have been made or provided for, and SWII and its
subsidiaries expect to have no further obligation with respect to any
prepetition claims. As of December 31, 1996, the Company has accrued
approximately $591,000 of remaining pre-petition bankruptcy claims payable
for the Class 8 unsecured creditors. Pursuant to the Plan, these amounts
are payable by Cadiz and are included in the Due to Parent amount on the
Balance Sheet.
Cadiz accounted for this acquisition using the purchase method of
accounting, with the effects therefrom pushed down to the Company.
Accordingly, with the commencement of business on September 14, 1996 the
Company adopted a new basis of accounting, with the assets and liabilities
recorded at their estimated fair values. The total purchase price
consisted of the following: (i) $179 million of assumed bankruptcy related
obligations including $156 million of restructured secured debt with Sun
World's existing lenders (of which $5.5 million was paid by Cadiz
concurrent with the acquisition), (ii) $11 million of ongoing trade and
other accrued liabilities which were assumed by Cadiz, (iii) $3.2 million
of direct acquisition costs and (iv) cash and stock of approximately $40
million, including a $15 million capital contribution to Sun World, with
the intent of eliminating the requirement for Sun World to have any
additional debt facilities beyond those owed to its existing secured
creditors. The effect of allocating the total purchase price to the net
assets acquired based on their estimated fair values is summarized as
follows (dollars in thousands):
Cash $32,113
Assets held for sale 18,949
Other current assets 45,225
Investment in partnerships 5,424
Property, plant & equipment 128,150
Other assets 3,409
--------
Total assets 233,270
--------
Prepetition bankruptcy claims payable (13,164)
Other current liabilities (15,870)
Long term debt (151,783)
Other liabilities (9,170)
-------
Total liabilities (189,987)
--------
Net assets acquired $ 43,283
========
No goodwill was recorded as a result of the acquisition.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING - The consolidated financial statements include the
accounts of SWII and its subsidiaries, substantially all of which are
wholly-owned. All significant intercompany transactions have been
eliminated.
INVENTORIES - Growing crops, pepper seed, and materials and supplies are
stated at the lower of cost, on a first-in, first-out (FIFO) basis, or
market. Growing crops inventory includes direct costs and an allocation
of indirect costs.
INVESTMENT IN PARTNERSHIPS - Wholly-owned subsidiaries of the Company
have investments in various partnerships. The Company's two principal
partnerships are American Sunmelon and Sun Date, both of which are 50%
owned. American Sunmelon is engaged in proprietary seed development,
production, and marketing of seedless watermelons. Sun Date is engaged
in the marketing, processing, and farming of dates. These partnership
investments are accounted for using the equity method.
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment is stated
at cost for all acquisitions subsequent to September 13, 1996. As part
of the Company's acquisition, property, plant and equipment as of
September 13, 1996, were adjusted to fair value primarily based upon
third party appraisals.
The Company capitalizes the direct and certain indirect costs of
planting and developing orchards and vineyards until they reach
maturity, which varies by crop and ranges from three to seven years.
Depreciation on trees and vines commences in the year commercial
production is achieved.
The Company computes depreciation applicable to property, plant and
equipment on the straight-line method using the following estimated
useful lives:
Buildings and improvements 10-45 years
Machinery and equipment 3-25 years
Permanent crops 10-20 years
Upon the sale, retirement or abandonment of property, plant and equipment,
applicable gains or losses are recognized in income.
Assets Held for Sale - In conjunction with the Company's acquisition,
certain assets were identified as either idle facilities, fallow land or
farming operations which have experienced consistently low returns on
investment. These assets are valued at the lower of cost or fair value
less estimated costs to sell. The Company reasonably believes these assets
can be sold within one year and accordingly has included the assets as
current assets. The Company sold approximately 3,200 acres of primarily
fallow land located in the San Joaquin Valley in December 1996.
REVENUE RECOGNITION - The Company recognizes crop sale revenue after
harvest and delivery to customers. Packing revenues are recognized as
units are packed. Marketing commission revenues are recognized at the time
of product shipment.
INCOME TAXES - The Company is included in the consolidated federal and
combined state tax returns of Cadiz. Effective September 13, 1996, the
Company and Cadiz entered into a tax sharing agreement which provides that
the Company's current tax liability is determined as though the Company
filed its own returns. Income taxes are accounted for using an asset and
liability approach which requires the recognition of deferred tax assets
and liabilities for the expected future tax consequences of temporary
differences between the carrying amounts and the tax bases of assets and
liabilities at the applicable enacted tax rates.
SUPPLEMENTAL CASH FLOW INFORMATION - The Company considers all short-term
deposits with an original maturity of three months or less to be cash
equivalents. Such investments are stated as cost, which approximates fair
value, and are considered cash equivalents for purposes of reporting cash
flows. Cash payments for interest for the period ended September 14, 1996
to December 31, 1996 were $3,553,000.
RESEARCH AND DEVELOPMENT - The Company incurs costs to research and develop
new varieties of proprietary products. Research and development costs are
expensed as incurred. Such costs were approximately $120,000 for the
period ended September 14, 1996 to December 31, 1996.
USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS - The preparation
of consolidated financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and related
notes. Actual results could differ from these estimates.
4. ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following (dollars in thousands):
December 31,
1996
-----------
Trade receivables $ 3,632
Due from growers 1,332
Other 2,911
-------
7,875
Less allowance for doubtful accounts 373
-------
$ 7,502
=======
Substantially all domestic trade receivables are from large national and
regional supermarket chain stores and produce brokers and are unsecured.
The amounts due from growers represent receivables for services (harvest,
haul and pack) provided on behalf of growers under agreement with the
Company and are recovered from proceeds of product sales. Other
receivables primarily include lemon crop sales, by-product sales, and
amounts receivable from joint venture partners.
5. INVENTORIES
Inventories consisted of the following (dollars in thousands):
December 31,
1996
-----------
Growing crops $ 10,299
Product 267
Pepper seed, net 2,018
Materials and supplies 1,530
----------
$ 14,114
==========
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following (dollars in
thousands):
December 31,
1996
----------
Land $ 38,994
Permanent crops 63,468
Buildings and improvements 18,291
Machinery and equipment 7,962
--------
128,715
Less accumulated depreciation 2,059
--------
$126,656
========
7. INCOME TAXES
Significant components of the Company's deferred income tax assets and
liabilities as of December 31, 1996, are as follows (dollars in
thousands):
Deferred tax liabilities:
Net fixed assets basis difference $ 6,014
Basis difference in partnership
investments 307
Purchase accounting adjustment 440
Other 4
-------
Total deferred tax liabilities 6,765
Deferred tax assets:
Net operating losses 1,388
Reserve for notes receivable 1,239
Capitalized legal fees 892
Basis difference in water rights 99
State taxes 1,478
Other 115
-------
Total deferred tax assets 5,211
Valuation allowance for deferred tax assets (2,793)
-------
Total deferred tax assets net 2,418
--------
Net deferred tax liability $ 4,347
========
The Company has provided a valuation allowance for the tax benefits of
deferred tax assets which may not be realizable.
At December 31, 1996, the Company had net operating loss carryforwards
state income tax purposes of approximately $14,929,000 which expire at
various dates from 1997 through 1999.
8. LONG-TERM DEBT
The carrying amount of the Company's outstanding long-term debt, which
approximates fair value, at December 31, 1996 is as follows:
(in thousands)
Term insurance company loan, interest payable
monthly with principal due in variable installments
through September 13, 2006, interest at 10.6% $ 77,092
Term bank loan, interest payable monthly with
principal due in variable installments through
September 13, 2006, variable interest rate based
upon prime or LIBOR (8.60% at December 31, 1996) 53,284
Note payable to insurance company, quarterly
installments of $93,000 (including interest), due
September 13, 2006, interest at 7.75% 2,531
Note payable to supplier, monthly installments of
$104,000 (including interest), due March 1, 1998,
interest at 10.00% 1,458
Note payable to finance company, monthly installments
of $18,000 (including interest), due July 1, 2002,
interest at 7.50% 989
--------
135,354
Less: current portion 4,235
--------
$131,119
========
The above financing agreements are collateralized by substantially all of
the Company's assets. The term insurance company loan and term bank loan
(collectively the "Term Loans") provide for principal payments in variable
amounts at the end of March, August and December of each year.
Additionally, the Term Loans provide for interest deferral, at the
Company's option, for the Company's peak seasonal need for working capital
during the months of April to July, which are payable at the end of August
and September.
The Company's financing arrangements require, among other terms, minimum
amounts, as defined, of working capital and tangible net worth and minimum
ratios of current assets to current liabilities and indebtedness to net
worth. Annual maturities of the long-term debt outstanding on December
31, 1996 is as follows: 1997-$4,235,000; 1998-$6,287,000; 1999-$9,369,000;
2000-$11,377,000; 2001-$11,410,000; 2002 and thereafter - $92,676,000.
9. RETIREMENT PLANS
The Company established on January 1, 1996 a 401(k) Plan for salaried
employees. Employees must work 1,000 hours and have completed one year
service to be eligible to participate in this plan.
The Company has a defined contribution pension plan covering substantially
all of its employees not covered by a collective bargaining agreement, with
at least one year of service and who have worked at least 1,000 hours.
Contributions are 2% of each covered employee's salary. For those hourly
employees covered under a collective bargaining agreement, contributions
are made to a multiemployer pension plan in accordance with negotiated
labor contracts and are generally based on the number of hours worked.
10. RELATED PARTY TRANSACTIONS
Cadiz owns approximately 1,600 acres of irrigated farmland in San
Bernardino County consisting primarily of citrus and grapes. Pursuant to
a ten year lease entered into as of the acquisition date, the Company is
responsible for the production, packing and handling, and marketing of the
products on the Cadiz property. The Company has entered into a sublease
arrangement related to the farming of the Cadiz grape vineyards. Cadiz is
to receive an annual payment equal to 33% of the net profit derived from
the Cadiz property, as defined in the loan agreement. In addition, the
Company entered into a "services agreement" with Cadiz in which Cadiz
provides management and financial services to the Company. The term of the
agreement is ten years with an annual fee of $1,500,000, which is paid
quarterly as well as reimbursement of expenses incurred on behalf of the
Company. For the period September 14, 1996 to December 31, 1996, the
Company made payments to Cadiz of $888,000. These payments primarily
represent payment of the "services agreement" fees mentioned above.
Included in prepaid expenses and other is $375,000 related to the payment
of these fees. In addition, at December 31, 1996, the Company has a net
payable due to Cadiz of $322,000 primarily due approximately $641,000 due
under the tax sharing agreement with Cadiz offset by Cadiz obligations to
pay certain prepetition bankruptcy claims pursuant to the Plan.
AMERICAN SUNMELON - The Company's share of partnership income for the
period from September 14, 1996 to December 31, 1996 from American Sunmelon
was $820,000.
SUN DATE - In September 1996, the Company and Sun Date entered into a five-
year marketing agreement for the Company to sell the dates produced by Sun
Date. During the period September 14, 1996 to December 31, 1996, the
Company made payments to Sun Date totalling $869,000, primarily related to
date crop proceeds.
11. COMMITMENTS AND CONTINGENCIES
In 1995, the Company entered into an agreement with its major corrugated
container supplier in connection with a prepetition liability settlement.
The settlement stipulated that the original agreement to purchase
containers from the supplier would remain in effect until March 21, 1998
and required the Company to issue a secured note payable to the supplier
(see Note 8). Thereafter, the original agreement will automatically renew
unless either party gives written notice ninety days prior to the end of
the renewal period.
In the normal course of agricultural operations, the Company handles,
stores, transports and dispenses products identified as hazardous
materials. The Company has had regulatory agencies conduct inspections and
there has been a claim asserted relating to these materials. Although the
Company does not believe remedial action, if any, will require the
expenditure of funds material to the Company's financial condition, no
assurance can be given regarding the outcome of environmental claims,
investigations or remedial actions in the future.
The Company is involved in other legal and administrative proceedings and
claims. In the opinion of management, the ultimate outcome of each
proceeding or all such proceedings combined will not have a material
adverse impact on the Company's financial statements.
12. SUBSEQUENT EVENTS - DEBT ISSUANCE
On April 16, 1997 the Company completed a private placement of $115.0
million in secured notes (the "Sun World Notes"). The Sun World Notes were
sold through Smith Barney Inc., as initial purchaser, to "qualified
institutional buyers" (as defined in Rule 144A under the Securities Act of
1933, as amended (the "Securities Act")) and a limited number of
institutional "accredited investors" (as defined in the Securities Act). The
proceeds from the issuance of the Sun World Notes, when combined with the
Company's existing cash and cash made available under a $30.0 million
Revolving Credit Facility entered into by the Company concurrently with the
issuance of the Sun World Notes, were used to retire the Company's existing
indebtedness under the Term Loans as well as Cadiz' existing indebtedness to
Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A. ("Rabobank").
The Company's $30.0 million Revolving Credit Facility matures in one year
and is guaranteed by Cadiz. Amounts borrowed under the Revolving Credit
Facility will accrue interest at either prime plus 1.50% or LIBOR plus 2.50%,
at the Company's election, with an additional .50% payable for advances on
eligible inventory above specified levels.
The Sun World Notes, which were issued in the principal amount of $115.0
million on April 16, 1997 and will mature on April 15, 2004, accrue interest
at the rate of 11 1/4% per annum. Interest only is payable semi-annually on
April 15 and October 15 of each year, commencing October 15, 1997. The Sun
World Notes are secured by a first lien on substantially all of the assets of
the Company and its subsidiaries, other than growing crops, crop inventories
and accounts receivable and proceeds thereof, which secure the Revolving
Credit Facility. The Sun World Notes are also secured by the guarantees of
Coachella Growers, Inc., Sun Desert, Inc., Sun World Brands, Sun World
Management Corporation,Sun World/Rayo, Agri-Land Realty, Inc., Big Valley
Leasing, Inc., Dinuba Packing Corporation, Pacific Farm Service, Inc., SFC
Marketing Corporation, Sun Harvest, Inc., Sun World Avocado and Sun World
Export, Inc. (collectively, the "Sun World Subsidiary Guarantors"), which
are all wholly-owned subsidiaries of Cadiz, and by Cadiz (the "Parent
Guarantor"). The Parent Guarantor also pledged all of the stock of the
Company. Management believes that the direct and indirect non-guarantor
subsidiaries of Sun World are inconsequential, individually and in the
aggregate, to the financial statements of the Company. The guarantees
by the Sun World Subsidiary Guarantors are full, unconditional, and joint
and several.
SUMMARIZED FINANCIAL INFORMATION
Combined summarized financial information for the Sun World Subsidiary
Guarantors is as follows: (in thousands):
December 31, September 13, December 31, December 31,
1996 1996 1995 1994
----------- ------------ ----------- ------------
Current assets $ -0- $ -0- $ -0- $ -0-
Noncurrent assets 8 11 10 10
Current liabilities -0- -0- -0- -0-
Noncurrent liabilities -0- -0- -0- -0-
September 14, January 1, For the year For the year
through through ended ended
December 31, September 13, December 31, December 31,
1996 1996 1995 1994
----------- ------------ ------------ -------------
Share of net income
(loss) of equity
investee $ 825 $ 624 $ 418 $ (830)
Separate financial statements for each of the Sun World Subsidiary
Guarantors are not presented as management has determined that they would
not be material to investors.
* * * *
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
OF
SUN WORLD INTERNATIONAL, INC.
AND
SUBSIDIARIES
For the Period January 1, 1996 through September 13, 1996
With Report of Independent Accountants
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of Sun World International, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations and accumulated deficit and of cash
flows present fairly, in all material respects, the financial position of Sun
World International, Inc. and its subsidiaries (the Company) at September
13, 1996, and the results of their operations and their cash flows for the
period January 1, 1996 through September 13, 1996 in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audit. We
conducted our audit of these statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for the opinion
expressed above.
As discussed in Note 1, the Company and certain of its subsidiaries filed
voluntary petitions for relief under Chapter 11 of the Bankruptcy Code on
October 3, 1994. On July 12, 1996, the Bankruptcy Court confirmed the
Plan of Reorganization (the Plan) which became effective on September 13,
1996. Concurrent with the approval of the Plan, the Company was acquired
by Cadiz Land Company, Inc. The accompanying consolidated financial
statements do not include any adjustments for the forgiveness of
indebtedness or for the adjustment of assets and other liabilities which will
result from the Plan nor do they give effect to any adjustments which may
be necessary as a consequence of the acquisition.
/s/ Price Waterhouse LLP
-----------------------
Price Waterhouse LLP
Los Angeles, California
November 22, 1996
<TABLE>
SUN WORLD INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
<CAPTION>
September 13,
1996
ASSETS ------------------
<S> <C>
Current assets:
Cash $ 17,113
Accounts receivable, net 18,347
Inventories 12,991
Assets held for sale 15,074
Prepaid expenses and other 1,241
--------------
Total current assets 64,766
Investment in partnerships 1,752
Property, plant and equipment, net 80,723
Other assets 5,425
---------------
$ 152,666
=========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 11,710
Accrued liabilities 1,878
Long term debt due within one year 1,269
---------------
Total current liabilities 14,857
Long term debt 1,484
Deferred revenue and other 59
Liabilities subject to compromise
under reorganization proceedings 180,249
Deferred income taxes 7,500
Commitments and contingencies
Stockholders' deficit:
Convertible 10% preferred stock,
75,000 shares authorized;
38,501 shares issued and
outstanding (liquidation
preference $11,550,000) 11,550
Common stock, $1 par value,
300,000 shares authorized;
42,000 shares issued and outstanding 42
Additional paid in capital 29,350
Accumulated deficit (92,425)
---------
Total stockholders' deficit (51,483)
---------
$ 152,666
=========
<FN>
See accompanying notes to the consolidated financial statements.
</FN>
</TABLE>
<TABLE>
SUN WORLD INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF OPERATIONS AND ACCUMULATED
DEFICIT
(Dollars in thousands)
<CAPTION> January 1 to
September 13,
1996
--------------
<S> <C>
Revenues $77,938
---------
Costs and expenses:
Cost of sales 60,300
General and administrative 5,934
---------
66,234
--------
Operating income 11,704
Other income (242)
Interest expense 10,806
------------
Net income before reorganization items 1,140
------------
Reorganization items:
Professional fees 4,085
Adequate protection fees 3,007
Interest income (500)
------------
Total reorganization items 6,592
------------
Net loss (5,452)
Accumulated deficit beginning of year (86,973)
-------------
Accumulated deficit at September 13, 1996 $(92,425)
========
<FN>
See accompanying notes to the consolidated financial statements.
</FN>
</TABLE>
<TABLE>
SUN WORLD INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
<CAPTION> January 1 to
September 13,
1996
---------------------
<S> <C>
Cash flows from operating activities:
Net loss $ (5,452)
Adjustments to reconcile
net loss to cash used in
operating activities:
Depreciation and amortization 4,085
Gain on sale of property,
plant and equipment (10)
Share of partnership operations (628)
Changes in operating assets
and liabilities:
Increase in accounts receivable,
net (4,468)
Increase in inventories (340)
Decrease in prepaid expenses
and other 112
Decrease in accounts payable (2,216)
Decrease in accrued liabilities (196)
Decrease in deferred revenue
and other (20)
-------------
(9,133)
-------------
Increase in liabilities subject to
compromise under
reorganized proceedings 2,794
------------
Net cash used in
operating activities (6,339)
-------------
Cash flows from investing activities:
Additions to property,
plant and equipment (2,321)
Additions to developing crops (462)
Partnership distributions 825
Increase in other assets (1,146)
Proceeds from disposal of
property, plant & equipment 2,991
------------
Net cash used in investing
activities (113)
-------------
Cash flows from financing activities:
Increase in long term debt 1,050
Payments of long term debt (818)
Proceeds from short term borrowings 46,711
Payments on short term borrowings (46,711)
------------
Net cash provided by
financing activities 232
------------
Net decrease in cash (6,220)
-------------
Cash at beginning of year 23,333
------------
Cash at September 13, 1996 $17,113
========
<FN>
See accompanying notes to the consolidated financial statements.
</FN>
</TABLE>
SUN WORLD INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
1. NATURE OF OPERATIONS AND REORGANIZATION UNDER CHAPTER 11
Sun World International, Inc. ("SWII") and its subsidiaries
(collectively the "Company") own and farm approximately 21,000
acres in two major growing areas of California, the Southern San
Joaquin Valley and Coachella Valley. Fresh produce, including
table grapes, tree fruit, peppers and watermelon are marketed,
packed and shipped to food wholesalers and retailers located
throughout the United States and in certain foreign countries. Export
sales accounted for approximately 7.5% of the Company's sales for
the period ended January 1, 1996 to September 13, 1996. As of
September 13, 1996, the Company owned and operated five cold
storage and/or packing facilities located in California.
On October 3, 1994, SWII and certain of its subsidiaries filed
voluntary petitions for relief under Chapter 11 of the Bankruptcy
Code. Since that date, the companies had been operating under
bankruptcy protection and had been negotiating with all parties to
the bankruptcy proceedings in an effort to develop a Plan of
Reorganization (the "Plan"). On July 12, 1996, the Bankruptcy
Court confirmed the Plan, which became effective on September 13,
1996 (the"Effective Date"). Pursuant to the Plan, SWII, Sun World,
Inc., Coachella Growers and Sun Desert, Inc. (all wholly owned
subsidiaries of SWII) emerged from the Chapter 11 Bankruptcy
proceedings and 100% of SWII's stock (both preferred and common)
was acquired by Cadiz Land Company, Inc. ("Cadiz"). The Plan
also provided for, among other things, the cancellation of certain
indebtedness in exchange for cash, elimination of all intercompany
debts, new indebtedness, issuance of new equity securities, the
discharge of other prepetition claims, the cancellation of all
prepetition ownership interests in the Company, the settlement of
certain claims and mutual releases of certain claims of the Company
and other persons or entities (including certain affiliated persons or
entities), the assumption or rejection of executory contracts and
unexpired leases to which the Company was a party, and the
establishment of procedures for the selection of a Board of Directors
for the Company. The Plan did not provide for the reorganization of
the estate or the resolution of outstanding third party claims and
equity interests for AAI Services, Inc., a wholly owned subsidiary of
SWII.
Cadiz acquired all of the capital stock of the Company for total
consideration of approximately $179 million including
approximately $150 million which will be owed to the Company's
existing secured lenders through issuance of new notes. In addition,
Cadiz made a cash capital contribution of $15 million to the
Company to provide additional operating capital.
The following table summarizes the recoveries to the prepetition
creditors and equity holders pursuant to the Plan based upon the
Company's estimate of total claims to be allowed as of September
13, 1996 (dollars in thousands) (unaudited):
Recovery
-----------------------------------------------------
Estimated Cadiz
Allowed Claims Long term Common Total
Claims/Interest Amount (1) Cash Debt Stock Recovery
- ----------------------------------------------------------------------------
Administrative,
Tax and Priority $ 5,000 $ 5,000 $ 0 $ 0 $ 5,000
Credit Agricole
Secured Debt 58,621 3,500 55,121 0 58,621
John Hancock
Secured Debt 93,084 2,000 91,084 0 93,084
Zenith Secured
Debt 3,065 250 2,575 240 3,065
Other Secured
Debt 1,050 0 1,050 0 1,050
General Unsecured
Claims 20,800 12,500 0 0 12,500
Convertible
Preferred Stock
and Common Stock 11,592 3,000 0 2,487 5,487
-------- -------- --------- ---------- --------
$193,212 $ 26,250 $ 149,830 $ 2,727 $178,807
======== ======= ======== ======== ========
(1) Excludes any recovery to the Internal Revenue Service for claims as further
discussed by Note 14.
Management believes that the aggregate fair value of the Company's
long term debt issued pursuant to the Plan approximates the
aggregate book value.
The Plan provided for a consolidation of the assets and liabilities of
SWII and its subsidiaries and pursuant to the Plan, SWII was merged
into Sun World, Inc. with the surviving corporation retaining the
name of Sun World International, Inc. All payments and
distributions required by the Plan to be made by SWII or any of its
subsidiaries in respect of prepetition claims have been made or
provided for, and SWII and its subsidiaries expect to have no further
obligation with respect to any prepetition claims.
Cadiz intends to account for this acquisition using the purchase
method which will materially change the amounts reported in the
accompanying consolidated balance sheet as of September 13, 1996.
The consolidated financial statements do not give effect to
adjustments of assets or liabilities, or classifications of such
amounts, which may be necessary as a consequence of the Cadiz
acquisition.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING The consolidated financial statements
include the accounts of SWII and its subsidiaries, substantially all of
which are wholly owned. All significant intercompany transactions
have been eliminated.
The Company has accounted for all transactions related to the
Chapter 11 proceedings in accordance with Statement of Position 90-7,
"Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code," issued by the American Institute of Certified
Public Accountants. Accordingly, liabilities subject to compromise
under reorganization proceedings have been segregated on the
consolidated balance sheet and are recorded at the amounts that have
been or are expected to be allowed based upon known claims. The
accompanying financial statements do not include any adjustments
for the forgiveness of indebtedness or for the adjustment of assets or
other liabilities which will result from the Plan.
INVENTORIES Growing crops, pepper seed, and materials and
supplies are stated at the lower of cost, on a first in, first out (FIFO)
basis, or net realizable value. Growing crops inventory includes
direct costs and an allocation of indirect costs.
INVESTMENT IN PARTNERSHIPS Wholly owned subsidiaries
of the Company have investments in various partnerships. The
Company's two principal partnerships are Sun Date and American
Sunmelon, both of which are 50% owned. American Sunmelon is
engaged in proprietary seed development, production, and marketing
of seedless watermelons. Sun Date is engaged in the marketing,
processing, and farming of dates. These partnership investments are
accounted for using the equity method.
PROPERTY, PLANT AND EQUIPMENT Property, plant and
equipment is stated at cost for all acquisitions subsequent to
September 30, 1983. All property, plant and equipment acquired
prior to September 30, 1983 was restated to estimated fair value at
that date in connection with the Company's quasi-reorganization.
The Company capitalizes the direct and certain indirect costs of
planting and developing orchards and vineyards until they reach
maturity, which varies by crop and ranges from three to seven years.
Depreciation on trees and vines commences in the year commercial
production is achieved.
The Company computes depreciation applicable to property, plant
and equipment on the straight line method using the following
estimated useful lives:
Buildings and improvements 10-45 years
Machinery and equipment 3-25 years
Permanent crops 10-20 years
Upon the sale, retirement or abandonment of property, plant and
equipment, applicable gains or losses are recognized in income.
ASSETS HELD FOR SALE In conjunction with the Company's
1996 Business Plan, specific properties were identified to be sold.
These properties, which are included in the accompanying
consolidated balance sheet at the lower of cost or fair value less
estimated costs to sell, consist of both farmland and facilities that
were determined not vital to the Company's on going operations. It
is expected that the assets will be sold within twelve months from
the balance sheet date.
OTHER ASSETS Other assets include professional fees and other
costs to establish and defend trademark and patent rights. These
assets are amortized over a 10 year period on a straight line basis.
Also included in other assets are water rights that were obtained in
connection with a 1988 divestiture of the Company's interest in a
partnership. The Company is amortizing these water rights over 97
years using the straight line method.
REVENUE RECOGNITION The Company recognizes crop sale
revenue after harvest and delivery to customers. Packing revenues
are recognized as units are packed. Marketing commission revenues
are recognized at the time of product shipment.
REORGANIZATION ITEMS The net expenses incurred as a
result of the Chapter 11 filing and subsequent reorganization
proceedings have been segregated from recurring operations in the
consolidated statement of operations.
INCOME TAXES Income taxes are accounted for using an asset
and liability approach which requires the recognition of deferred tax
assets and liabilities for the expected future tax consequences of
temporary differences between the financial statement and tax bases
of assets and liabilities at the applicable enacted tax rates.
SUPPLEMENTAL CASH FLOW INFORMATION Cash
payments for interest were $9,308,000 for the period ended January
1, 1996 to September 13, 1996. In 1996 the Company paid income
tax, net of refunds, of $11,000.
RESEARCH AND DEVELOPMENT The Company incurs costs
to research and develop new varieties of proprietary products.
Research and development costs are expensed as incurred. Such
costs were approximately $296,000 for the period ended January 1,
1996 to September 13, 1996.
USE OF ESTIMATES IN PREPARATION OF FINANCIAL
STATEMENTS The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
amounts reported in the financial statements and related notes.
Actual results could differ from these estimates.
RECENTLY ISSUED ACCOUNTING STANDARDS In March
1995, Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long Lived Assets and for Long
Lived Assets to be Disposed of ("SFAS 121") was issued. SFAS
No. 121 establishes new guidelines in accounting for the impairment
of long lived assets, including identifiable intangibles. When
circumstances indicate that the carrying amount of an asset may not
be recoverable as demonstrated by estimated future cash inflows, an
impairment loss shall be recorded based on fair value. The adoption
of SFAS No. 121 in 1996 resulted in no adjustments to the financial
statements.
3. ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following (dollars in
thousands):
September 13
1996
----------------
Trade receivables $14,178
Due from unaffiliated growers 709
Other 3,642
-------
18,529
Less allowance for doubtful
accounts 182
-----------
$18,347
=========
Substantially all domestic trade receivables are from large
national and regional supermarket chain stores and produce
brokers and are unsecured. The amounts due from growers
represent receivables for services (harvest, haul and pack)
provided on behalf of growers under agreement with the
Company and are recovered from proceeds of product sales.
Other receivables primarily include lemon crop sales, by product
sales, and amounts receivable from joint venture partners.
4. INVENTORIES
Inventories consisted of the following (dollars in thousands):
September 13,
1996
------------
Growing crops $ 6,732
Harvested product 1,912
Pepper seed 2,206
Materials and supplies 2,141
-----------
$12,991
=========
Pepper seed is net of a valuation allowance of $395,000 at
September 13, 1996, to reduce such inventories to their net
realizable value.
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following
(dollars in thousands):
September 13,
1996
------------------
Land $ 27,446
Permanent crops 43,764
Buildings and improvements 27,236
Machinery and equipment 20,250
-------------
118,696
Less accumulated depreciation 37,973
-------------
$ 80,723
============
6. INCOME TAXES
Significant components of the Company's deferred income tax
assets and liabilities as of September 13, 1996, are as follows
(dollars in thousands):
Deferred tax liabilities:
Net fixed asset basis difference $23,078
State taxes 181
--------
Total deferred tax liabilities 23,259
Deferred tax assets:
Net operating losses 29,779
Tax credit carryforwards 1,549
Reserve for notes receivable 5,769
Capitalized legal fees 4,447
Basis difference in water rights 1,198
Allowance for doubtful accounts 79
Basis difference in partnership investments 290
Revolving funds reserve 114
State taxes 353
-------
Total deferred tax assets 43,578
Valuation allowance for deferred tax assets (27,819)
Total deferred tax assets, net 15,759
-----------
Net deferred tax liability $ 7,500
=======
The Company has provided a valuation allowance for the tax
benefits of deferred tax assets which may not be realizable.
Income tax expense (benefit) varies from the amount
computed by applying the statutory federal income tax rate to
the income (loss) before income taxes. The reasons for this
difference are as follows:
September 13,
1996
---------------
Statutory federal rate (34.0%)
State taxes, less federal benefit (6.2%)
Valuation allowance 40.2%
-----------
Effective rate 0.0%
========
At September 13, 1996, the Company had net operating loss
carryforwards for federal and state income tax purposes of
approximately $40,439,000 and $8,032,000, respectively,
which expire at various dates from 1997 through 2011. In
addition, a wholly owned subsidiary acquired in 1989 has net
operating loss carryforwards of approximately $44,950,000 for
federal tax purposes, which are subject to an annual limitation
for a fifteen year period. The federal loss carryforwards expire
at various dates from 2001 through 2004.
The Company had investment and research and experimental
tax credit carryforwards of approximately $692,000 which
expire from 1997 to 2007. The Company also had alternative
minimum tax carryforwards of approximately $857,000.
The utilization of the net operating loss and credit
carryforwards could be limited or eliminated by a reduction in
liabilities as a result of the Plan and/or by changes in the
Company's stock ownership resulting from the Cadiz
acquisition.
7. FINANCING
Pursuant to the Plan, the Company issued new debt (along
with Cadiz common stock) to settle prepetition long term debt.
The following is a discussion of the Company's financing
arrangements prior to and as of the Effective Date.
Prepetition Financing:
Debt and other financing arrangements of the Company at
September 13, 1996 were as follows, based on the original
contractual maturities:
September 13,
1996
--------------
(in thousands)
Secured Debt:
Revolving credit facility $ 34,277
Note payable to an insurance
company, monthly installments
of $824,000 (includes
interest), due on November
1, 2000, interest
at 10.6% (default interest
at 12.6%) 77,234
Note payable to bank, semi
annual installments
of $750,000, due November
30, 1999, interest
at prime plus 1.25%
(9.75% at December 31,
1995), payable quarterly
(default interest at
prime plus 3.25%) 5,793
Note payable to bank,
annual installments of
$1,500,000 due November 30,
1996, interest
at prime plus 1.25%
(9.75% at December 31,
1995), payable quarterly
(default interest at prime
plus 3.25%) 10,500
Note payable to insurance
company, monthly
installments of $60,000
(includes interest), interest
at 12.9% 2,838
Unsecured Debt:
Note payable to bank,
due July 1, 1995, interest
only at 10.0%, payable
quarterly 1,500
Note payable to partnership,
due September 1, 1994,
interest at 13.25% 1,150
--------
$ 133,292
==========
All of this prepetition debt has been classified in the
accompanying consolidated balance sheet as "Liabilities subject
to compromise under reorganization proceedings." As a result
of the bankruptcy, all required principal payments on prepetition
debt were suspended. For the period subsequent to the Petition
Date, interest on the unsecured prepetition debt was not paid or
accrued. Interest on secured prepetition debt continued to be
accrued in the period subsequent to the Petition Date at the
default interest rates. Pursuant to Bankruptcy Court order,
adequate protection payments (including $3,417,000 in asset sale
proceeds) were made on the secured debt amounting to
$11,650,000 for the period from January 1, 1996 to September
13, 1996. "Liabilities subject to compromise under
reorganization proceedings" included $18,486,000 related to
unpaid interest accrued on secured debt and $5,642,000 of
unpaid professional fees incurred by the secured lenders as of
September 13, 1996. Pursuant to the Plan, this accrued but
unpaid interest and unpaid professional fees have been included
as part of the principal balance of the respective new financing
agreements.
These credit facilities described above were collateralized by
substantially all of the assets of the Company. The Company
was in default on substantially all of the covenants under these
credit facilities as of September 13, 1996.
Debtor In Possession Financing:
The Bankruptcy Court entered an order on January 20, 1995
approving a debtor in possession (DIP) financing agreement for
the Company in an aggregate amount of $30,000,000. The DIP
facility was amended and restated as of February 28, 1996 to
extend the facility through the 1996 operating season in an
aggregate amount of $20,000,000. The DIP financing granted to
the DIP lender security interests in all the real and personal
property of the Company including all contract accounts,
contract rights, fixtures, copyrights, patents and trademarks.
Under the terms of the loan and the Bankruptcy Code, the
security interest of the DIP lender had priority over virtually all
prepetition claims and Chapter 11 administrative expense claims.
The DIP financing also contained a clause to provide adequate
protection to certain prepetition secured lenders in the form of (a)
replacement liens and (b) payment of specified amounts on the
prepetition secured debt to cover interest and professional fees
incurred by the lenders.
Interest on the DIP borrowings was prime plus 1.25%. During
1996, the Company borrowed and repaid up to $6,790,000 under
this facility and had no balance outstanding at September 13,
1996. Total interest and fees paid during 1996 related to the DIP
facility was $106,000.
The DIP facility expired when the Company emerged from
bankruptcy on September 13, 1996.
Postpetition Financing:
On or about October 27, 1995, the Bankruptcy Court issued the
Weyerhaeuser Order pursuant to which the Company assumed
certain agreements with Weyerhaeuser for corrugated shipping
containers and related financing. Pursuant to the Weyerhaeuser
Order, the Company was required to make certain adequate
protection payments and entered into a secured note. In addition,
during 1996, the Company, with Bankruptcy Court approval,
agreed to purchase certain equipment which had been under lease
and entered in a secured note. The outstanding balances at
September 13, 1996 for these notes were as follows:
(in thousands)
Note payable to supplier,
monthly installments of $ 1,728
$104,000 (includes interest),
due March 1, 1998,
interest at 10.00%.
Note payable to financing company,
monthly installments
of $18,155 (includes interest),
due July 1, 2002,
interest at 7.50% 1,025
----------
2,753
Less: current portion 1,269
-----------
$ 1,484
==========
Plan Financing:
Pursuant to the Plan, the Company entered into new financing
agreements totaling approximately $150 million with its
existing secured lenders which are collateralized by
substantially all of the assets of the Company. These
financing agreements require, among other terms, minimum
amounts, as defined, of working capital and tangible net worth
and minimum ratios of current assets to current liabilities and
indebtedness to net worth. Annual maturities of the debt
outstanding upon emergence from bankruptcy on September
13, 1996 is as follows: remainder of 1996-$3,705,000; 1997-$8,789,000;
1998-$7,970,000; 1999-$9,369,000; 2000-$11,377,000; 2001 and thereafter
- $110,322,000.
8. PREFERRED STOCK
In May 1985, the Board of Directors of the Company
designated 40,000 shares of Preferred Stock as Series I
Preferred Stock. Each share of Series I Preferred Stock was
convertible into one share of Common Stock and was entitled
to receive cash dividends of $30 per share for each of the fiscal
years ending on or after September 30, 1987. Such dividends
were cumulative under certain circumstances and included
other rights such as a liquidation preference per share equal to
the sum of $300, plus all accrued but unpaid dividends.
Pursuant to the Plan, all prepetition ownership interests of the
Company, including the Series I Preferred Stock, as of the
Effective Date were sold to Cadiz. At that time, accumulated
undeclared dividends on the preferred stock of $10,395,000 at
September 13, 1996 were released.
9. LEASING ARRANGEMENTS
The Company leases certain parcels of land, facilities,
machinery, and equipment under non cancelable operating
leases which expire in various years through 2000.
At September 13, 1996, future minimum lease commitments
under noncancellable leases (exclusive of property taxes and
insurance) consist of the following for each fiscal year ended
December 31 (dollars in thousands):
Facilities &
Land Equipment Total
------ ---------- -------
1996 $ 61 $ 344 $ 405
1997 117 351 468
1998 102 51 153
1999 3 0 3
2000 3 0 3
--------- --------- --------
$ 286 $ 746 $ 1,032
======= ======= =======
Total operating lease rental expense for the period ended
January 1, 1996 to September 13, 1996 was $862,000.
10. LIABILITIES SUBJECT TO COMPROMISE UNDER REORGANIZATION PROCEEDINGS
Liabilities subject to compromise under reorganization
proceedings consisted of the following as of September 13,
1996 (dollars in thousands):
Accounts payable $ 24,348
Interest payable 18,486
Other accrued liabilities 4,123
Long term debt (see Note 7) 133,292
-------------
$ 180,249
========
11. COMMITMENTS
DEBT GUARANTEE The Company was co guarantor with
its partner on a bank loan to the Sun Date partnership (see
Note 13). The loan totaled $1,150,000 at September 13, 1996.
In connection with the Sun Date settlement during the
bankruptcy proceeding, the Company will be released from
this bank guarantee and Cadiz has agreed to guarantee the
bank loan up to a maximum of $350,000.
PURCHASE AGREEMENT In 1995, the Company entered
into an agreement with its major corrugated container supplier
in connection with a prepetition liability settlement. The
settlement stipulated that the original agreement to purchase
containers from the supplier would remain in effect until
March 21, 1998 and required the Company to issue a secured
note payable to the supplier (see Note 7). Thereafter, the
original agreement will automatically renew unless either
party gives written notice ninety days prior to the end of the
renewal period.
12. RETIREMENT PLANS
The Company established on January 1, 1996 a 401(k) Plan
for salaried employees. Employees must work 1,000 hours
and have completed one year service to be eligible to
participate in this plan. The Company contributed $105,000 to
the plan for the period from January 1, 1996 to September 13,
1996.
The Company has a defined contribution pension plan
covering substantially all of its employees not covered by a
collective bargaining agreement, with at least one year of
service and who have worked at least 1,000 hours.
Contributions are 2% of each covered employee's salary.
There were no contributions made for the period from January
1, 1996 to September 13, 1996. For those hourly employees
covered under a collective bargaining agreement, contributions
are made to a multiemployer pension plan in accordance with
negotiated labor contracts and are generally based on the
number of hours worked. There were no contributions made
to these plans for the period from January 1, 1996 to
September 13, 1996.
13. RELATED PARTY TRANSACTIONS
AG ACCOUNTING, INC. The Company has entered into
agreements to market products obtained from growers in
which a former major stockholder/director of the Company
has financial interests and/or farm management contracts. Ag
Accounting, Inc. ("Ag Accounting"), which is wholly owned
by this former stockholder/director, provides accounting
services to these affiliated growers. The Company recognized
marketing commission revenues from these affiliated growers
of $151,000 for the period January 1, 1996 to September 13,
1996. The Company makes crop advances and charges for
some or all of harvesting, hauling, packing and marketing
services provided to these growers. These charges are
deducted from crop proceeds paid to growers. Amounts due
the Company from Ag Accounting totalled $84,000 as of
September 13, 1996. The Company bills the affiliated
growers monthly for services and remits net proceeds to each
grower for the crops marketed by the Company. In certain
instances, the Company has also obtained financing for these
affiliated growers. Costs related to a product incentive
program of $115,000 were incurred on behalf of Ag
Accounting for the period from January 1, 1996 to September
13, 1996.
ANTHONY VINEYARDS, INC. Anthony Vineyards, Inc. is
a farming entity owned by a former officer and director of the
Company. During 1996, the Company entered into marketing
agreements and provided packing and marketing services to
this grower. The Company makes grower advances for
harvesting, hauling, and packing materials which are
recovered from the grower at the time the Company receives
the crop proceeds. At September 13, 1996, the Company
owed Anthony Vineyards, Inc. $706,000 for net crop proceeds
received. The Company recognized marketing commission
revenues from Anthony Vineyards of $717,000 for the period
from January 1, 1996 to September 13, 1996.
LSL BIOTECHNOLOGIES, INC. LSL Biotechnologies,
Inc. (LSL) is an entity that develops, produces and markets
seed varieties in which former officers and/or directors of the
Company have or had ownership interests. The Company and
LSL entered into growing agreements and seed purchase
contracts related to peppers and tomatoes. During the
bankruptcy proceeding, LSL made claims for prepetition and
postpetition amounts owed by the Company under the
agreements which the Company disputed. On September 9,
1996, an agreement between the Company and LSL was
reached that settled all LSL pre and postpetition claims against
the Company. The settlement included the allowance of a
prepetition unsecured claim in the amount of $900,000 and a
postpetition administrative claim of $650,000 for postpetition
royalties owed to LSL for pepper and tomato sales. The
prepetition allowed claim of $900,000 is included in
"Liabilities subject to compromise under reorganization
proceedings" in the accompanying balance sheet. The
postpetition allowed claim of $650,000 is included in accounts
payable in the accompanying balance sheet. In addition, the
Company agreed to convey the trade name and trademark Le
Rouge Royale to LSL and obtained a license to utilize the
trademark until December 31, 1997 for an additional royalty
of $100,000.
THE IRVINE COMPANY In prior years, the Company had
orchard and row crop farming, packing and marketing
agreements with The Irvine Company. A former major
stockholder/director of the Company owned stock in and was
a director of The Irvine Company, a large land owner and
developer in Southern California. In 1993, the orchard
agreement was terminated and in 1994 the row crop agreement
was terminated. As of September 13, 1996, the Company had
liabilities owed to The Irvine Company, primarily for land rent
and crop proceeds, of $5,000,000, which will be settled for
sixty percent of the total amount pursuant to the Plan.
AMERICAN SUNMELON For the period from January 1,
1996 through September 13, 1996, the Company made
payments to American Sunmelon of $461,000 primarily for
royalty payments and seed purchases. As of September 13,
1996, the Company had liabilities owed to American
Sunmelon of $188,000.
SUN DATE Prior to September 13, 1996, a former major
stockholder/director of the Company had ownership interests
in various date farming partnerships that provided unprocessed
dates to Sun Date. For the period January 1, 1996 through
September 13, 1996, the Company recognized marketing
commissions from date sales of $37,000. In addition, as of
September 13, 1996, the Company had liabilities payable to
Sun Date of $1,163,00, including a $1,150,000 prepetition
note payable which will be settled for sixty percent of the total
outstanding balance pursuant to the Plan.
14. CONTINGENCIES
The Internal Revenue Service (IRS) has filed claims against
the Company, and certain subsidiaries, for taxes refunded to
the Company for certain workers that the IRS claims were
employees. The Company contends that the workers are
excluded from the definition of employment under the Internal
Revenue Code. A complaint has been filed by the Company
in the Bankruptcy Court seeking refunds of taxes paid on
account of agricultural workers for other years. The Company
intends to object to the claims asserted by the IRS. The total
amount of claims filed against the Company are approximately
$4,300,000 including tax deficiency, interest and penalties. At
September 13, 1996, the Company has recorded a reserve for
these claims representing management's best estimate of the
ultimate amount that will be paid.
On January 3, 1996, the Company brought an action against
Corona College Heights Orange & Lemon Association (CCH)
alleging breach of contract, intentional interference with
economic advantage and unfair competition. On April 17,
1996, CCH counterclaimed against the Company, alleging
breach of contract, breach of fiduciary duty, negligence, fraud
and deceit, negligent misrepresentation, constructive fraud,
intentional interference with prospective economic advantage,
unjust enrichment and constructive trust and accounting. This
matter is in the early stages of discovery.
In the normal course of agricultural operations, the Company
handles, stores, transports and dispenses products identified as
hazardous materials. The Company has had regulatory
agencies conduct inspections and there has been a claim
asserted relating to these materials. Although the Company
does not believe remedial action, if any, will require the
expenditure of funds material to the Company's financial
position, no assurance can be given regarding the outcome of
environmental claims, investigations or remedial actions in the
future.
The Company is involved in other legal and administrative
proceedings and claims. In the opinion of management, the
ultimate outcome of each proceeding or all such proceedings
combined will not have a material adverse impact on the
Company's financial statements.
******
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
OF
SUN WORLD INTERNATIONAL, INC.
AND
SUBSIDIARIES
For the Years Ended December 31, 1995 and 1994
With Independent Auditors' Report
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders of
Sun World International, Inc.
We have audited the accompanying consolidated balance sheets of Sun
World International, Inc. and subsidiaries (the "Company") as of December
31, 1995 and 1994, and the related consolidated statements of operations and
accumulated deficit and of cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly in all
material respects the financial position of the Company as of December 31,
1995 and 1994, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting
priciples.
As discussed in Note 1 to the consolidated financial statements, the Company
and certain of its subsidiaries filed voluntary petitions for relief under
Chapter 11 of the Bankruptcy Code on October 3, 1994. Since that date, the
companies had been operating under Bankruptcy protection and had been
negotiating with all parties to the Bankruptcy proceedings in an effort to
develop a Plan of Reorganization (the "Plan"). On July 12, 1996, the
Bankruptcy Court confirmed the Plan, which became effective on September
13, 1996. Under the Plan, the Company is required to comply with certain
terms and conditions as more fully described in Note 1.
/s/ Deloitte & /Touche LLP
- --------------------------
Fresno, California
September 20, 1996
<TABLE>
SUN WORLD INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<CAPTION>
December 31.
------------------------------
1995 1994
ASSETS -------- ---------
<S> <C> <C>
Current assets:
Cash $ 23,333 $ 11,836
Accounts receivable, net 13,879 11,386
Inventories 12,710 13,875
Prepaid expenses and other 1,353 1,521
--------- -------
Total current assets 51,275 38,618
Investment in partnerships 1,948 2,220
Property, plant and equipment, net 81,680 112,088
Assets held for sale 17,969 -0-
Other assets 4,652 4,762
--------- -------
Total assets $ 157,524 $157,688
========= =======
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 13,926 $ 10,566
Accrued liabilities 2,074 2,588
Long-term debt due in one year 1,063 -0-
--------- --------
Total current liabilities 17,063 13,154
Long-term debt 1,458 -0-
Deferred revenue and other 79 292
Deferred income taxes 7,500 7,500
Liabilities subject to compromise under
reorganization proceedings 177,455 174,036
Commitments and contingencies
Stockholders' deficit:
Convertible 10% preferred stock,
75,000 shares authorized;
38,501 shares issued and
outstanding (liquidation
preference $11,550,000) 11,550 11,550
Common stock, $1 par value,
300,000 shares authorized;
42,000 shares issued and outstanding 42 42
Additional paid-in capital 29,350 29,350
Accumulated deficit (86,973) (78,236)
--------- ---------
Total stockholders' deficit (46,031) (37,294)
---------- --------
Total liabilities and
stockholders' deficit $ 157,524 $157,688
========= ========
<FN>
See accompanying notes to the consolidated financial statements.
</FN>
</TABLE>
<TABLE>
SUN WORLD INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
(Dollars in thousands)
<CAPTION>
Years ended December 31,
-------------------------
1995 1994
----------- ---------
<S> <C> <C>
Revenues $117,623 $127,169
-------- --------
Costs and expenses:
Cost of sales 85,546 112,661
General and administrative 6,287 11,368
Permanent crop abandonments 1,560 1,312
-------- -------
Total operating costs 93,393 125,341
-------- --------
Operating profit 24,230 1,828
Provision for loss on asset disposals 4,868 2,136
Other expense/(income) 686 (178)
Interest expense 16,756 15,442
-------- --------
Income (loss) before reorganization
items 1,920 (15,572)
-------- --------
Reorganization items:
Professional fees 7,976 4,693
Adequate protection fees 3,214 2,259
Debt issuance costs 0 1,487
Interest income (533) (107)
-------- ----------
Total reorganization items 10,657 8,332
-------- ------------
Net loss (8,737) (23,904)
Accumulated deficit beginning of year (78,236) (54,332)
--------- -----------
Accumulated deficit end of year $(86,973) $(78,236)
========= =========
<FN>
See accompanying notes to the consolidated financial statements.
</FN>
</TABLE>
<TABLE>
SUN WORLD INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<CAPTION>
Years Ended December 31,
1995 1994
-----------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (8,737) $ (23,904)
Adjustments to reconcile net
loss to cash provided
by operating activities:
Depreciation and amortization 6,705 7,037
Loss on sale of property,
plant and equipment 605 162
Writeoff of debt issuance costs 0 1,487
Provision for loss on disposal
of assets 4,868 2,136
Permanent crop abandonments 1,560 1,312
Share of partnership operations (400) 738
Changes in operating assets and
liabilities:
(Increase)/decrease in
accounts receivable (2,493) 9,954
Decrease in inventories 1,165 7,588
Decrease in prepaid expenses
and other 168 104
Increase in accounts payable 3,360 10,565
(Decrease)/increase in accrued
liabilities (514) 2,588
(Decrease) in deferred revenue
and other (213) (62)
-------- --------
6,074 19,705
-------- --------
Increase/(decrease) in liabilities
subject to compromise under
reorganization proceedings 6,038 (2)
-------- --------
Net cash provided by operating
activities 12,112 19,703
-------- --------
Cash flows from investing activities:
Additions to property, plant
and equipment (929) (2,623)
Additions to developing crops (1,355) (2,341)
Partnership distributions 672 379
(Increase)/decrease in other assets (436) 13
Proceeds from disposal of property,
plant and equipment 1,530 75
-------- --------
Net cash used in
investing activities (518) (4,497)
-------- ---------
Cash flows from financing activities:
Payments of long-term debt
subject to compromise (97) (696)
Proceeds from short-term borrowings 91,303 16,431
Payments on short-term borrowings (91,303) (20,594)
-------- ---------
Net cash used in financing
activities (97) (4,859)
-------- ----------
Net increase in cash 11,497 10,347
-------- ----------
Cash at beginning of year 11,836 1,489
-------- -----------
Cash at end of year $ 23,333 $ 11,836
======== ==========
<FN>
See accompanying notes to the consolidated financial statements.
</FN>
</TABLE>
SUN WORLD INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND REORGANIZATION UNDER CHAPTER 11
Sun World International, Inc. ("SWII") and its subsidiaries
(collectively the "Company") own and farm approximately 21,000
acres in two major growing areas of California, the Southern San
Joaquin Valley and Coachella Valley. Fresh produce, including
table grapes, tree fruit, peppers and watermelon are marketed,
packed and shipped to food wholesalers and retailers located
throughout the United States and in certain foreign countries. Export
sales accounted for approximately 7% of the Company's sales for the
years ended December 31, 1995 and 1994. As of December 31,
1995, the Company owned and operated eight cold storage and/or
packing facilities located in California. In 1996, three of those
facilities were sold.
On October 3,1994, SWII and certain of its subsidiaries filed
voluntary petitions for relief under Chapter 11 of the Bankruptcy
Code. Since that date, the companies had been operating under
Bankruptcy protection and had been negotiating with all parties to
the bankruptcy proceedings in an effort to develop a Plan of
Reorganization (the "Plan"). On July 12, 1996, the Bankruptcy
Court confirmed the Plan, which became effective on September 13,
1996 (the"Effective Date"). Pursuant to the Plan, SWII, Sun World,
Inc., Coachella Growers and Sun Desert, Inc. (all wholly-owned
subsidiaries of SWII) emerged from the Chapter 11 Bankruptcy
proceedings and 100% of SWII's stock (both preferred and common)
was acquired by Cadiz Land Company, Inc. ("Cadiz"). The Plan
also provided for, among other things, the cancellation of certain
indebtedness in exchange for cash, elimination of all intercompany
debts, new indebtedness, issuance of new equity securities, the
discharge of other prepetition claims, the cancellation of all
prepetition ownership interests in the Company, the settlement of
certain claims and mutual releases of certain claims of the Company
and other persons or entities (including certain affiliated persons or
entities), the assumption or rejection of executory contracts and
unexpired leases to which the Company was a party, and the
establishment of procedures for the selection of a Board of Directors
for the Company. The Plan did not provide for the reorganization of
the estate or the resolution of outstanding third-party claims and
equity interests for AAI Services, Inc., a wholly-owned subsidiary of
SWII.
Cadiz acquired all of the capital stock of the Company for total
consideration of approximately $179 million including
approximately $150 million which will be owed to the Company's
existing secured lenders through issuance of new notes. In addition,
Cadiz made a cash capital contribution of $15 million to the
Company to provide additional operating capital.
The following table summarizes the recoveries to the prepetition
creditors and equity holders pursuant to the Plan based upon the
Company's estimate of total claims to be allowed as of September
13, 1996 (dollars in thousands) (unaudited):
Recovery
-----------------------------------------------------
Estimated Cadiz
Allowed Claims Long-Term Common Total
Claims/Interest Amount (1) Cash Debt Stock Recovery
- --------------------------------------------------------------------------
Administrative,
Tax and Priority $ 5,000 $ 5,000 $ 0 $ 0 $ 5,000
Credit Agricole
Secured Debt 58,621 3,500 55,121 0 58,621
John Hancock
Secured Debt 93,084 2,000 91,084 0 93,084
Zenith Secured
Debt 3,065 250 2,575 240 3,065
Other Secured
Debt 1,050 0 1,050 0 1,050
General Unsecured
Claims 20,800 12,500 0 0 12,500
Convertible
Preferred Stock
and Common Stock 11,592 3,000 0 2,487 5,487
-------- --------- -------- ------- --------
$ 193,212 $ 26,250 $149,830 $ 2,727 $178,807
======= ========= ======== ======= ========
(1) Excludes any recovery to the Internal Revenue Service for claims
as further discussed by Note 14.
Management believes that the aggregate fair value of the Company's
long-term debt issued pursuant to the Plan approximates the
aggregate book value.
The Plan provided for a consolidation of the assets and liabilities of
SWII and its subsidiaries and pursuant to the Plan, SWII was merged
into Sun World, Inc. with the surviving corporation retaining the
name of Sun World International, Inc. All payments and
distributions required by the Plan to be made by SWII or any of its
subsidiaries in respect of prepetition claims have been made or
provided for, and SWII and its subsidiaries expect to have no further
obligation with respect to any prepetition claims.
Cadiz intends to account for this acquisition using the purchase
method which will materially change the amounts reported in the
accompanying consolidated balance sheet as of December 31, 1995.
The consolidated financial statements do not give effect to
adjustments of assets or liabilities, or classifications of such
amounts, which may be necessary as a consequence of the Cadiz
acquisition.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING The consolidated financial statements
include the accounts of SWII and its subsidiaries, substantially all of
which are wholly owned. All significant intercompany transactions
have been eliminated.
The Company has accounted for all transactions related to the
Chapter 11 proceedings in accordance with Statement of Position 90-7,
"Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code," issued by the American Institute of Certified
Public Accountants. Accordingly, liabilities subject to compromise
under reorganization proceedings have been segregated on the
consolidated balance sheets and are recorded at the amounts that
have been or are expected to be allowed based upon known claims.
INVENTORIES Growing crops, pepper seed, and materials and
supplies are stated at the lower of cost, on a first-in, first-out (FIFO)
basis, or market. Growing crops inventory includes direct costs and
an allocation of indirect costs.
INVESTMENT IN PARTNERSHIPS Wholly-owned subsidiaries
of the Company have investments in various partnerships. The
Company's two principal partnerships are Sun Date and American
Sunmelon, both of which are 50% owned. American Sunmelon is
engaged in proprietary seed development, production, and marketing
of seedless watermelons. Sun Date is engaged in the marketing,
processing, and farming of dates. These partnership investments are
accounted for using the equity method.
PROPERTY, PLANT AND EQUIPMENT Property, plant and
equipment is stated at cost for all acquisitions subsequent to
September 30, 1983. All property, plant and equipment acquired
prior to September 30, 1983 was restated to estimated fair value at
that date in connection with the Company's quasi-reorganization.
The Company capitalizes the direct and certain indirect costs of
planting and developing orchards and vineyards until they reach
maturity, which varies by crop and ranges from three to seven years.
Depreciation on trees and vines commences in the year commercial
production is achieved.
The Company computes depreciation applicable to property, plant
and equipment on the straight-line method using the following
estimated useful lives:
Buildings and improvements 10-45 years
Machinery and equipment 3-25 years
Permanent crops 10-20 years
Upon the sale, retirement or abandonment of property, plant and
equipment, applicable gains or losses are recognized in income.
ASSETS HELD FOR SALE In conjunction with the Company's
1996 Business Plan, specific properties were identified to be sold.
These properties, which are included in the accompanying
consolidated balance sheet at the lower of cost or net realizable
value, consist of both farmland and facilities that were determined
not vital to the Company's ongoing operations. The Company
has sold certain facilities in 1996 including facilities located in
Reedley, Arvin and Thermal.
OTHER ASSETS Other assets include professional fees and
other costs to establish and defend trademark and patent rights.
These assets are amortized over a 10-year period on a straight-line
basis. Also included in other assets are water rights that were
obtained in connection with a 1988 divestiture of the Company's
interest in a partnership. The Company is amortizing these water
rights over 97 years using the straight-line method.
PROVISION FOR LOSS ON ASSET DISPOSALS In 1995 and
1994, the Company recorded provisions for loss on disposal of
assets totaling $4,868,000 and $2,136,000, respectively. Such
write-downs represented amounts necessary to reduce the assets to
their expected net realizable value.
REVENUE RECOGNITION The Company recognizes crop
sale revenue after harvest and delivery to customers. Packing
revenues are recognized as units are packed. Marketing
commission revenues are recognized at the time of product
shipment.
REORGANIZATION ITEMS The net expenses incurred as a
result of the Chapter 11 filing and subsequent reorganization
proceedings have been segregated from recurring operations in the
consolidated statements of operations.
INCOME TAXES Deferred income taxes on the difference
between financial statement basis and tax basis of assets and
liabilities are provided for at the statutory rates.
SUPPLEMENTAL CASH FLOW INFORMATION Cash
payments for interest were $6,258,000 and $6,673,000 in the years
ended December 31, 1995 and 1994, respectively. In 1995 and
1994 the Company paid income tax, net of refunds, of $13,000
and $633,000, respectively.
RESEARCH AND DEVELOPMENT The Company incurs
costs to research and develop new varieties of proprietary
products. Research and development costs are expensed as
incurred. Such costs were approximately $393,000 and
$1,127,000 for the years ended December 31, 1995 and 1994,
respectively.
USE OF ESTIMATES IN PREPARATION OF FINANCIAL
STATEMENTS The preparation of consolidated financial
statements in conformity with generally accepted accounting
principles requires management to make estimates and
assumptions that affect the amounts reported in the financial
statements and related notes. Actual results could differ from
these estimates.
RECENTLY ISSUED ACCOUNTING STANDARDS In March
1995, Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of" ("SFAS 121") was issued.
SFAS No. 121 establishes new guidelines in accounting for the
impairment of long-lived assets, including identifiable intangibles.
When circumstances indicate that the carrying amount of an asset
may not be recoverable as demonstrated by estimated future cash
inflows, an impairment loss shall be recorded based on fair value.
The Company has not yet adopted SFAS No. 121 but believes that
its impact when adopted will not be material.
3. ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following (dollars
in thousands):
December 31,
1995 1994
---------- ---------
Trade receivables $ 6,791 $ 4,107
Due from unaffiliated
growers 1,962 903
Due from affiliated
growers 257 840
Other 5,051 5,904
--------- ---------
14,061 11,754
Less allowance for
doubtful accounts 182 368
--------- ---------
$13,879 $ 11,386
====== ==========
Substantially all domestic trade receivables are from large
national and regional supermarket chain stores and produce
brokers and are unsecured. The amounts due from growers
represent receivables for services (harvest, haul and pack)
provided on behalf of growers under agreement with the
Company and are recovered from proceeds of product sales.
Other receivables primarily include lemon crop sales, by-product
sales, and amounts receivable from joint venture partners.
4. INVENTORIES
Inventories consisted of the following (dollars in thousands):
December 31,
-------------------
1995 1994
---------- --------
Growing crops $ 8,337 $ 9,103
Pepper seed 2,328 2,950
Materials and supplies 2,045 1,822
-------- -----------
$ 12,710 $ 13,875
======= ======
Pepper seed is net of valuation allowance of $395,000
and $375,000 at December 31, 1995 and 1994,
respectively, to reduce such inventories to their net
realizable value.
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following
(dollars in thousands):
December 31,
----------------
1995 1994
----------- -----------
Land $ 27,446 $ 39,194
Permanent crops 42,837 49,217
Buildings and improvements 27,860 38,607
Machinery and equipment 19,485 29,562
----------- ----------
117,628 156,580
Less accumulated
depreciation 35,948 44,492
----------- ----------
$ 81,680 $ 112,088
======== ============
6. INCOME TAXES
Significant components of the Company's deferred income tax
assets and liabilities as of December 31, 1995 and 1994 are as
follows (dollars in thousands):
1995 1994
---------- -------------
Deferred tax liabilities:
Net fixed asset basis
difference $ 23,630 $ 22,122
State taxes 181 181
-------- --------
Total deferred tax
liabilities 23,811 22,303
-------- --------
Deferred tax assets:
Net operating losses 29,779 28,655
Tax credit carryforwards 1,604 1,760
Reserve for notes
receivable 5,769 5,769
Capitalized legal fees 2,789 2,789
Basis difference in
water rights 1,198 1,198
Deferred crop costs 484 1,685
Allowance for doubtful
accounts 79 159
Basis difference in
partnership investments 40 12
State taxes 353 353
-------- --------
Total deferred tax
assets 42,095 42,380
Valuation allowance for
deferred
tax assets (25,784) (27,577)
Total deferred tax
assets, net 16,311 14,803
-------- --------
Net deferred
tax liability $ 7,500 $ 7,500
========= =========
The Company has provided a valuation allowance for the tax
benefits of deferred tax assets which may not be realizable.
Income tax expense (benefit) varies from the amount
computed by applying the statutory federal income tax rate to
the income (loss) before income taxes. The reasons for this
difference are as follows:
December 31,
-----------------
1995 1994
-------- ----------
Statutory federal rate (34.0)% (34.0)%
State taxes, less
federal benefit (6.2)% (6.2)%
Valuation allowance 40.2 % 40.2 %
----------- ----------
Effective rate 0.0 % 0.0 %
========== ==========
At December 31, 1995, the Company had net operating loss
carryforwards for federal and state income tax purposes of
approximately $40,439,000 and $8,032,000, respectively, which
expires at various dates from 1997 through 2010. In addition, a
wholly-owned subsidiary acquired in 1989 has net operating loss
carryforwards of approximately $44,950,000 for federal tax
purposes, which are subject to an annual limitation for a fifteen-
year period. The federal loss carryforwards expire at various
dates from 2001 through 2004.
The Company had investment and research and experimental tax
credit carryforwards of approximately $747,000 which expire
from 1996 to 2007. The Company also had alternative minimum
tax carryforwards of approximately $857,000.
The utilization of the net operating loss and credit carryforwards
could be limited or eliminated by a reduction in liabilities as a
result of the Plan and/or by changes in the Company's stock
ownership resulting from the Cadiz acquisition.
7. FINANCING
Pursuant to the Plan, the Company issued new debt (along with
Cadiz common stock) to settle prepetition long-term debt. The
following is a discussion of the Company's financing
arrangements prior to and as of the Effective Date.
Prepetition Financing:
Debt and other financing arrangements of the Company at
December 31, 1995 and 1994 were as follows, based on the
original contractual maturities:
December 31,
------------------
(in thousands)
1995 1994
------------ -------------
Secured Debt:
Revolving credit facility $ 34,277 $ 34,277
Note payable to an insurance
company, monthly
installments of $824,000
(includes interest), due
on November 1, 2000,
interest at 10.6%
(default interest at
12.6%) 77,234 77,234
Note payable to bank,
semi-annual installments
of $750,000, due November
30, 1999, interest
at prime plus 1.25%
(9.75% at December 31,
1995), payable quarterly
(default interest at
prime plus 3.25%) 5,793 5,793
Note payable to bank,
annual installments of
$1,500,000 due November
30, 1996, interest
at prime plus 1.25%
(9.75% at December 31,
1995), payable quarterly
(default interest at
prime plus 3.25%) 10,500 10,500
Note payable to insurance
company, monthly
installments of $60,000
(includes interest),
interest at 12.9% 2,838 2,694
Unsecured Debt
Note payable to bank,
due July 1, 1995, interest
only at 10.0%, payable
quarterly 1,500 1,500
Note payable to partnership,
due September 1, 1994,
interest at 13.25% 1,150 1,150
------- -------
$133,292 $133,148
========= ========
All of this prepetition debt has been classified in the
accompanying consolidated balance sheets as "Liabilities
subject to compromise under reorganization proceedings." As
a result of the bankruptcy, all required principal payments on
prepetition debt were suspended. For the period subsequent to
the Petition Date, interest on the unsecured prepetition debt
was not paid or accrued. Interest on secured prepetition debt
continued to be accrued in the period subsequent to the
Petition Date at the default interest rates. Pursuant to
Bankruptcy Court order, adequate protection payments were
made on the secured debt amounting to $3,214,000 and
$2,259,000 for the years ended December 31, 1995 and 1994,
respectively. "Liabilities subject to compromise under
reorganization proceedings" included $19,248,000 and
$9,098,000 related to unpaid interest accrued on secured debt
for the years ended December 31, 1995 and 1994,
respectively.
These credit facilities described above were collateralized by
substantially all of the assets of the Company. The Company
was in default on substantially all of the covenants under these
credit facilities as of December 31, 1995 and 1994.
Debtor In Possession Financing:
The Bankruptcy Court entered an order on January 20, 1995
approving a debtor in possession (DIP) financing agreement
for the Company in an aggregate amount of $30,000,000. The
DIP financing granted to the DIP lender security interests in
all the real and personal property of the Company including all
contract accounts, contract rights, fixtures, copyrights, patents
and trademarks. Under the terms of the loan and the
Bankruptcy Code, the security interest of the DIP lender had
priority over virtually all prepetition claims and Chapter 11
administrative expense claims. The DIP financing also
contained a clause to provide adequate protection to certain
prepetition secured lenders in the form of (a) replacement liens
and (b) payment of specified amounts on the prepetition
secured debt to cover interest and professional fees incurred by
the lenders.
Interest on the DIP borrowings was prime plus 1.25%. During
1995, the Company borrowed and repaid up to $21,181,000
under this facility and had no balance outstanding at December
31, 1995. Total interest and fees paid during 1995 related to
the DIP facility was $681,000.
The DIP facility was amended and restated as of February 28,
1996 to extend the facility through the 1996 operating season
in an aggregate amount of $20,000,000. The DIP facility
expired when the Company emerged from bankruptcy on
September 13, 1996.
Postpetition Financing:
On or about October 27, 1995, the Bankruptcy Court issued
the Weyerhaeuser Order pursuant to which the Company
assumed certain agreements with Weyerhaeuser for corrugated
shipping containers and related financing. Pursuant to the
Weyerhaeuser Order, the Company was required to make
certain adequate protection payments and entered into a
secured note which had an outstanding balance at December
31, 1995 as follows:
(in thousands)
Note payable to supplier,
monthly installments of $ 2,521
$104,000 (includes interest),
due March 1, 1998,
interest at 10.00%.
Less: current portion 1,063
----------
$ 1,458
===========
Plan Financing:
Pursuant to the Plan, the Company entered into new financing
agreements totaling approximately $150 million with its
existing secured lenders which are collateralized by
substantially all of the assets of the Company. Annual
maturities of the debt outstanding upon emergence from
bankruptcy on September 13, 1996 (including the postpetition
financing) is as follows: 1996-$4,502,000; 1997-$8,789,000;
1998-$7,970,000; 1999-$9,369,000; 2000-$11,377,000; 2001
and thereafter - $110,322,000.
8. PREFERRED STOCK
In May 1985, the Board of Directors of the Company
designated 40,000 shares of Preferred Stock as Series I
Preferred Stock. Each share of Series I Preferred Stock was
convertible into one share of Common Stock and was entitled
to receive cash dividends of $30 per share for each of the fiscal
years ending on or after September 30, 1987. Such dividends
were cumulative under certain circumstances and included
other rights such as a liquidation preference per share equal to
the sum of $300, plus all accrued but unpaid dividends.
Pursuant to the Plan, all prepetition ownership interests of the
Company, including the Series I Preferred Stock, as of the
Effective Date were sold to Cadiz. At that time, accumulated
undeclared dividends on the preferred stock of $10,395,000
and $9,240,000 at December 31, 1995 and 1994 were released.
9. LEASING ARRANGEMENTS
The Company leases certain parcels of land, facilities,
machinery, and equipment under noncancelable operating
leases which expire in various years through 2000.
At December 31, 1995, future minimum lease commitments
under noncancellable leases (exclusive of property taxes and
insurance) consist of the following (dollars in thousands):
Facilities &
Land Equipment Total
-------- ----------- ---------
1996 $ 119 $ 1,543 $ 1,662
1997 114 348 462
1998 114 60 174
1999 0 9 9
2000 0 9 9
--------- ------ -------
$ 347 $ 1,969 $ 2,316
======== ======= ========
Operating lease payments for the years ended December 31,
1995 and 1994 were $2,554,000 and $4,595,000, respectively.
10. LIABILITIES SUBJECT TO COMPROMISE UNDER REORGANIZATION PROCEEDINGS
Liabilities subject to compromise under reorganization
proceedings consisted of the following as of December 31
(dollars in thousands):
1995 1994
------------ -----------
Accounts payable $ 20,792 $ 27,667
Interest payable 19,248 9,098
Other accrued liabilities 4,123 4,123
Long-term debt (see
Note 7) 133,292 133,148
----------- -----------
$ 177,455 $ 174,036
========= ==========
11. COMMITMENTS
DEBT GUARANTEE The Company was co-guarantor with
its partner on a bank loan to the Sun Date partnership (see
Note 13). The loan totaled $1,150,000 at December 31, 1995
and 1994. In connection with the Sun Date settlement during
the bankruptcy proceeding, the Company will be released from
this bank guarantee and Cadiz has agreed to guarantee the
bank loan up to a maximum of $350,000.
PURCHASE AGREEMENT In 1995, the Company entered
into an agreement with its major corrugated container supplier
in connection with a prepetition liability settlement. The
settlement stipulated that the original agreement to purchase
containers from the supplier would remain in effect until
March 21, 1998 and required the Company to issue a secured
note payable to the supplier (see Note 7). Thereafter, the
original agreement will automatically renew unless either
party gives written notice ninety days prior to the end of the
renewal period.
12. RETIREMENT PLANS
The Company has a defined contribution pension plan
covering substantially all of its employees not covered by a
collective bargaining agreement, with at least one year of
service and who have worked at least 1,000 hours.
Contributions are 2% of each covered employee's salary and
totaled approximately $207,000 and $300,000 for the years
ended December 31, 1995 and 1994, respectively. For those
hourly employees covered under a collective bargaining
agreement, contributions are made to a multiemployer pension
plan in accordance with negotiated labor contracts, are
generally based on the number of hours worked, and totaled
approximately $11,000 and $25,000 for the years ended
December 31, 1995 and 1994, respectively.
13. RELATED PARTY TRANSACTIONS
AG-ACCOUNTING, INC. The Company has entered into
agreements to market products obtained from growers in
which a former major stockholder/director of the Company
has financial interests and/or farm management contracts.
Ag-Accounting, Inc. ("Ag-Accounting"), which is wholly owned
by this former stockholder/director, provides accounting
services to these affiliated growers. The Company recognized
marketing commission revenues from these affiliated growers
of $104,000 and $436,000 for the years ended December 31,
1995 and 1994, respectively. The Company makes crop
advances and charges for some or all of harvesting, hauling,
packing and marketing services provided to these growers.
These charges are deducted from crop proceeds paid to
growers. As of December 31, 1994, the amount due Ag-Accounting
from the Company was $404,000 (none in 1995). Amounts due the
Company from Ag-Accounting totaled $233,000 and $634,000 as
of December 31, 1995 and 1994, respectively. The Company bills
the affiliated growers monthly for services and remits net
proceeds to each grower for the crops marketed by the Company.
In certain instances, the Company has also obtained financing for
these affiliated growers.
Costs related to a product incentive program and certain
payroll and office expenses of $395,000 and $503,000 were
incurred on behalf of Ag-Accounting for the years ended
December 31, 1995 and 1994, respectively.
In 1993, the Company determined that receivables due from
Ag-Accounting and growers affiliated with Ag-Accounting in
the amount of $8,652,000 were uncollectible. These amounts
which were written off represent advances made by the
Company to Ag-Accounting for operating expenses and to Ag-
Accounting ranches for growing and harvesting costs. Under
the Plan, Ag-Accounting, the majority stockholder/director,
and the affiliated growers have been released from all claims
and liabilities related to the Company.
ANTHONY VINEYARDS, INC. Anthony Vineyards, Inc. is
a farming entity owned by a former officer and director of the
Company. The Company entered into marketing agreements
and provided packing and marketing services to this grower.
The Company makes grower advances for harvesting, hauling,
and packing materials which are recovered from the grower at
the time the Company receives the crop proceeds. The
Company recognized marketing commission revenues from
Anthony Vineyards of $1,277,000 and $980,000 for the years
ended December 31, 1995 and 1994, respectively. In addition,
at December 31, 1994, the Company had liabilities owed to
Anthony Vineyards, Inc. of $841,000 (none in 1995). The
amounts due the Company from Anthony Vineyards as of
December 31, 1995 and 1994 were $26,000 and $125,000,
respectively.
STOCKHOLDERS In 1993, the Company determined that
$3,771,000 in receivables due from stockholders were
uncollectible and were written off. As part of the Plan, all
liabilities and claims between the former stockholders and the
Company have been released.
LSL BIOTECHNOLOGIES, INC. LSL Biotechnologies,
Inc. (LSL) is an entity that develops, produces and markets
seed varieties in which former officers and/or directors of the
Company have or had ownership interests. The Company and
LSL entered into growing agreements and seed purchase
contracts related to peppers and tomatoes. For the year ended
December 31, 1994, the Company made royalty payments to
LSL of $1,339,000 (none in 1995). During the bankruptcy
proceeding, LSL made significant claims for prepetition and
postpetition amounts owed by the Company under the
agreements which the Company disputed. On September 9,
1996, an agreement between the Company and LSL was
reached that settled all LSL pre and postpetition claims against
the Company. The settlement included the allowance of the
prepetition unsecured claim for $900,000, and postpetition
administrative claim of $650,000 for postpetition royalties
owed to LSL for pepper and tomato sales. In addition, the
Company agreed to convey the trade name and trademark Le
Rouge Royale(R) to LSL and obtained a license to utilize the
trademark until December 31, 1997 for an additional royalty
of $100,000.
THE IRVINE COMPANY The Company had orchard and
row crop farming, packing and marketing agreements with
The Irvine Company. A former major stockholder/director of
the Company owned stock in and was a director of The Irvine
Company, a large land owner and developer in Southern
California. In 1993, the orchard agreement was terminated
and in 1994 the row crop agreement was terminated. As of
December 31, 1995 and 1994, the Company had liabilities
owed to The Irvine Company, primarily for land rent and crop
proceeds, of $4,946,000 and $5,400,000, respectively. In
connection with the Plan, the Company agreed to allow a
claim of $5,000,000 in settlement of Irvine's prepetition
liability and claim against the Company.
AMERICAN SUNMELON For the years ended December
31, 1995 and 1994, the Company made payments to American
Sunmelon of $849,000 and $1,101,000, respectively, primarily
for royalty payments and seed purchases. As of December 31,
1995 and 1994, the Company had liabilities owed to American
Sunmelon of $128,000 and $210,000, respectively. The
Company's share of partnership income from American
Sunmelon was $1,111,000 and $480,000 for the years ended
December 31, 1995 and 1994, respectively.
SUN DATE On September 9, 1996, the Company and Sun
Date entered into an agreement that included a release or
settlement of all prepetition claims between Sun Date and the
Company, and included provisions for the Company to sell the
dates produced by Sun Date. A former major
stockholder/director of the Company, prior to September 13,
1996, had ownership interests in various date farming
partnerships that provided unprocessed dates to Sun Date. For
the years ended December 31, 1995 and 1994, the Company
recognized marketing commissions from date sales of
$116,000 and $68,000, respectively. In addition, as of
December 31, 1995 and 1994, the Company had liabilities
payable to Sun Date of $1,175,000 and $1,546,000,
respectively, including a $1,150,000 prepetition note payable
which was settled as described above. The Company's share
of the partnership loss from Sun Date was $677,000 and
$669,000 for the years ended December 31, 1995 and 1994,
respectively.
14. CONTINGENCIES
The Internal Revenue Service (IRS) has filed claims against
the Company, and certain subsidiaries, for taxes refunded to
the Company for certain workers that the IRS claims were
employees. The Company contends that the workers are
excluded from the definition of employment under the Internal
Revenue Code. A complaint has been filed by the Company
in the Bankruptcy Court seeking refunds of taxes paid on
account of agricultural workers for other years. The Company
intends to object to the claims asserted by the IRS. The total
amount of claims filed against the Company are approximately
$4,300,000 including tax deficiency, interest and penalties. At
December 31, 1995 and 1994, the Company has recorded a
reserve for these claims representing management's best
estimate of the ultimate amount that will be paid.
On January 3, 1996, the Company brought an action against
Corona College Heights Orange & Lemon Association (CCH)
alleging breach of contract, intentional interference with
economic advantage and unfair competition. On April 17,
1996, CCH counterclaimed against the Company, alleging
breach of contract, breach of fiduciary duty, negligence, fraud
and deceit, negligent misrepresentation, constructive fraud,
intentional interference with prospective economic advantage,
unjust enrichment and constructive trust and accounting. This
matter is in the early stages of discovery.
In the normal course of agricultural operations, the Company
handles, stores, transports and dispenses products identified as
hazardous materials. The Company has had regulatory
agencies conduct inspections and there has been a claim
asserted relating to these materials. Although the Company
does not believe remedial action, if any, will require the
expenditure of funds material to the Company's financial
condition, no assurance can be given regarding the outcome of
environmental claims, investigations or remedial actions in the
future.
The Company is involved in other legal and administrative
proceedings and claims. In the opinion of management, the
ultimate outcome of each proceeding or all such proceedings
combined will not have a material adverse impact on the
Company's financial statements.
* * * * * *
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law permits Sun
World's and Cadiz' Board of Directors to indemnify any person against
expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with
any threatened, pending or completed action, suit or proceeding in which
such person is made a party by reason of his being or having been a
director, officer, employee or agent of the Registrant, in terms
sufficiently broad to permit such indemnification under certain
circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act of 1933, as amended (the
"Act"). The statute provides that indemnification pursuant to its
provisions is not exclusive of other rights of indemnification to which
a person may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors, or otherwise.
Cadiz' and Sun World's Bylaws (Exhibit 3.3 hereto and Exhibit 3.7
respectively) provide for mandatory indemnification of directors and
officers, and those serving at the request of each as directors,
officers, employees, or agents of other entities (collectively,
"Agents"), to the maximum extent permitted by law. Each of the Bylaws
provide that such indemnification shall be a contract right between each
Agent and each of Cadiz and Sun World.
In 1990, Cadiz entered into an Indemnity Agreement with each of the
individuals then serving as an executive officer or director of Cadiz
including Keith Brackpool, the current Chief Executive Officer of Cadiz.
The Indemnity Agreement as to Mr. Brackpool remains in effect; all of
the other executive officers and directors who executed an Indemnity
Agreement with Cadiz have since resigned from their positions with
Cadiz. The Indemnity Agreement provides for the indemnification of the
indemnified party with respect to his activities as a director or
officer of Cadiz or an affiliate of Cadiz against expenses and
liabilities, of whatever nature, incurred in connection with any claim
made against him by reason of facts which include his affiliation with
Cadiz. Such indemnification is provided to the maximum extent permitted
by Cadiz' charter documents, insurance policies and/or any applicable
law.
The Registration Rights Agreement between Sun World, Cadiz and the
Initial Purchaser provide that Sun World shall indemnify each holder of
Old Notes under certain circumstances and the holders of Old Notes shall
indemnify Sun World and the controlling persons of Sun World under
certain circumstances, including indemnification for liabilities arising
under the Act.
Each of Sun World's and Cadiz' Certificate of Incorporation provide
that a director shall not be personally liable to Sun World or Cadiz
respectively, or their stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of
the director's duty of loyalty to the corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the Delaware General Corporation Law, or (iv) for any
transaction from which the director derived an improper personal
benefit. Cadiz also has purchased a liability insurance policy which
insures its directors and officers against certain liabilities,
including liabilities under the Act.
Item 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
The following exhibits are filed or incorporated by reference as
part of this Registration Statement:
2.1 Debtors' Modified Fourth Amended Consolidated Plan of
Reorganization dated June 3, 1996 (as modified)(1)
2.2 Plan Implementation Agreement dated July 12, 1996(1)
2.3 Supplement to Plan Support Agreement dated June 3, 1996(1)
2.4 Stock Purchase Agreement with Howard Marguleas dated
September 13, 1996(2)
2.5 Form of Stock Purchase Agreement with Minority Stockholders
of Sun World dated September 13, 1996(2)
3.1 Certificate of Incorporation of Cadiz as amended(3)
3.2 Amendment to Certificate of Incorporation of Cadiz dated
November 8, 1996(4)
3.3 Bylaws of Cadiz, as amended to date(5)
3.4 Amended and Restated Certificate of Incorporation of Sun
World, Inc.(17)
3.5 Certificate of Merger of Sun World International, Inc. into
Sun World, Inc.(17)
3.6 Agreement and Plan of Merger of Sun World, Inc. and Sun
World International, Inc.(17)
3.7 Amended and Restated Bylaws of Sun World, International,
Inc. (17)
4.1 Indenture dated as of April 16, 1997 among Sun World as
issuer, Sun World and certain subsidiaries of Sun World as
guarantors, and IBJ Schroder Bank & Trust Company as
Trustee, for the benefit of holders of 11-1/4% First
Mortgage Notes due 2004 (including, as Exhibit A to the
Indenture, the form of the Global Note and the form of each
Guarantee)(15)
4.2 Form of Amendment to Indenture dated as of October 9, 1997
5.1 Opinion of Miller & Holguin as to certain corporate law
matters
8.1 Opinion of Miller & Holguin as to certain tax matters
10.1 Cadiz 1984 Incentive Stock Option Plan(7)
10.2 Cadiz 1988 Nonstatutory Stock Option Plan(8)
10.3 Cadiz 1996 Stock Option Plan(13)
10.4 Stock Purchase and Fee Agreement dated March 22, 1989
between Cadiz and Mark A. Liggett(7)
10.5 Form of Limited Partnership Agreement of Southwest Fruit
Growers, L.P.(9)
10.6 Farm Management Agreement dated as of March 28, 1990 between
Cadiz and Southwest Fruit Growers, L.P.(9)
10.7 Promissory Note in the amount of $3,486,868 dated as of
March 28, 1990 issued by Southwest Fruit Growers, L.P. in
favor of Cadiz (Hyder Note)(9)
10.8 Promissory Note in the amount of $4,934,922 dated as of
March 28, 1990 issued by Southwest Fruit Growers, L.P. in
favor of Cadiz (Cadiz Note)(9)
10.9 Promissory Note in the amount of $3,141,344 dated as of
March 28, 1990 issued by Southwest Fruit Growers, L.P. in
favor of Cadiz (Farming Note)(9)
10.10 Second Amendment and Supplement to Stock Purchase and Fee
Agreement, dated December 23, 1992 between Cadiz and Mark
Liggett(10)
10.11 Loan Agreement dated March 15, 1995 between Cadiz, CVDC and
Ansbacher(11)
10.12 Fourth Loan Modification Agreement dated March 15, 1995
between Cadiz, CVDC and Rabobank(11)
10.13 Form of Option Agreement dated April 20, 1995 between Cadiz
and David Peterson(11)
10.14 Plan Support Agreement dated December 11, 1995(12)
10.15 Waiver of Certain Provisions of Plan Support Agreement dated
January 12, 1996(12)
10.16 Amended and Restated Credit Agreement between Sun World
International, Inc. and Caisse Nationale de Credit Agricole
dated September 13, 1996(4)
10.17 Promissory Note between Sun World International, Inc. and
Caisse Nationale de Credit Agricole dated September 13,
1996(4)
10.18 New Hancock Credit Agreement between Sun World
International, Inc. and John Hancock Mutual Life Insurance
Company dated September 13, 1996(4)
10.19 Secured Promissory Note between Sun World International,
Inc. and John Hancock Mutual Life Insurance Company dated
September 13, 1996(4)
10.20 Form of Employment Agreement dated September 13, 1996
between Sun World, Cadiz and Timothy J. Shaheen(14)
10.21 Form of Employment Agreement dated September 13, 1996
between Sun World, Cadiz and Stanley E. Speer(14)
10.22 Form of Sun World Executive Officer Employment Agreement(18)
12.1 Statement of Computation of Ratios(17)
21.1 Subsidiaries of the Registrant(15)
23.1 Consent of Price Waterhouse LLP
23.2 Consent of Deloitte & Touche LLP
23.3 Consent of Miller & Holguin (also included in Exhibits 5.1 and
8.1)
25.1 Statement of Eligibility on Form T-1 of IBJ Schroder Bank &
Trust Company (bound separately from other exhibits)(17)
27.1 Financial Data Schedule(16)
99.1 Registration Rights Agreement dated April 16, 1997 between
Sun World, Guarantors, Cadiz and Smith Barney, Inc.(17)
99.2 Form of Letter of Transmittal
99.3 Form of Notice of Guaranteed Delivery
99.4 Form of Exchange Agent Agreement (17)
(1) Previously filed as Exhibit to Cadiz' Report on Form
10-Q for the quarter ended June 30, 1996
(2) Previously filed as Exhibit to Cadiz' Report on Form 8-K
dated September 13, 1996
(3) Previously filed as Exhibit to Cadiz' Registration
Statement on Form S-1 (Registration No. 33-75642)
declared effective May 16, 1994
(4) Previously filed as Exhibit to Cadiz' Report on Form
10-Q for the quarter ended September 30, 1996
(5) Previously filed as Exhibit to Cadiz' Report on Form
8-K dated May 6, 1992
(6) Previously filed as Exhibit to Cadiz' Annual Report on
Form 10-K for the fiscal year ended March 31, 1996
(7) Previously filed as Exhibit to Cadiz' Annual Report on
Form 10-K for the fiscal year ended March 31, 1989
(8) Previously filed as Exhibit to Cadiz' Annual Report on
Form 10-K for the fiscal year ended March 31, 1988
(9) Previously filed as Exhibit to Cadiz' Annual Report on
Form 10-K for the fiscal year ended March 31, 1990
(10) Previously filed as Exhibit to Cadiz' Annual Report on
Form 10-K for the fiscal year ended March 31, 1993
(11) Previously filed as Exhibit to Cadiz' Annual Report on
Form 10-K for the fiscal year ended March 31, 1995
(12) Previously filed as Exhibit to Cadiz' Report on Form
10-Q for the quarter ended December 31, 1995
(13) Previously filed as Exhibit A to Cadiz' Proxy Statement
relating to the Annual Meeting of Stockholders held on
November 8, 1996
(14) Previously filed as Exhibit to Cadiz' Transition Report
on Form 10-K for the nine months ended December 31,
1996
(15) Previously filed as Exhibit to Amendment No. 1 to
Cadiz' Form S-1 Registration Statement No. 333-19109
(16) Previously filed as Exhibit to Cadiz' Report on Form
10-Q for the quarter ended March 31, 1997
(17) Previously filed as Exhibit to Sun World's Form S-4
Registration Statement No 333-31103
(18) Previously filed as Exhibit to Amendment No. 1 to
Sun World's Form S-4 Registration Statement
No. 333-31103
(b) Financial Statement Schedules
The following financial statement schedules are filed as part of this
Registration Statement and should be read in conjunction with the
consolidated financial statements of Cadiz.
SCHEDULE Page
--------- -----
Schedule I: Condensed Financial Information of Registrant S-2
Schedule II: Valuation and Qualifying Accounts S-5
Schedules not listed above have been omitted because they are not
applicable or are not required or the information required to be set
forth therein is included in the Cadiz' Consolidated Financial
Statements or the Notes thereto.
Item 22. UNDERTAKINGS.
(a) The undersigned Registrants hereby undertake:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration
statement:
(i) To include any prospectus required by section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration
statement (or the most recent post-effective
amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the
information set forth in the registration statement;
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in
the registration statement or any material change to
such information in the registration statement.
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and
the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which
remain unsold at the termination of the offering.
(4) To respond to requests for information that is incorporated
by reference into the prospectus pursuant to Item 4, 10(b),
11 or 13 of this Form, within one business day of receipt
of such request, and to send the incorporated documents by
first class mail or other equally prompt means. This
includes information contained in documents filed
subsequent to the effective date of the Registration
Statement through the date of responding to the request;
and
(5) To supply by means of a post-effective amendment all
information concerning the Exchange Offer that was not the
subject of and included in the Registration Statement when
it became effective.
(g) (1) The undersigned registrants hereby undertake as follows:
That prior to any public re-offering of the securities
registered hereunder through use of a prospectus which is a
part of this registration statement, by any person or party
who is deemed to be an underwriter within the meaning of
Rule 145(c), the issuer undertakes that such re-offering
prospectus will contain the information called for by the
applicable registration form with respect to re-offerings
by persons who may be deemed underwriters, in addition to
the information called for by the other Items of the
applicable form.
(2) The registrants undertake that every prospectus (i) that is
filed pursuant to paragraph (1) immediately preceding, or
(ii) that purports to meet the requirements of section
10(a)(3) of the Securities Act of 1933 and is used in
connection with an offering of securities subject to Rule
415, will be filed as a part of an amendment to the
registration statement and will not be used until such
amendment is effective, and that, for purposes of
determining any liability under the Securities Act of 1933,
each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities
offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide
offering thereof.
(h) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the Registrants pursuant to the
foregoing provisions, or otherwise, the Registrants have been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the Registrants of expenses incurred
or paid by a director, officer or controlling person of the
Registrants in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
Registrants will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Amendment No. 2 to Registration Statement No.
333-31103 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Los Angeles, State of California, on
October 10, 1997.
SUN WORLD INTERNATIONAL, INC.
/s/ Timothy J. Shaheen
---------------------------------
By: Timothy J. Shaheen
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933,
this Amendment No. 2 to Registration Statement No. 333-31103 has been signed
by the following persons in the capacities and on the dates indicated.
Name and Position Date
------------------------- -----------
/s/ Keith Brackpool
_________________________ October 10, 1997
Keith Brackpool
Chairman of the Board
/s/ Timothy J. Shaheen
_________________________ October 10, 1997
Timothy J. Shaheen
Chief Executive Officer and Director
(Principal Executive Officer)
/s/ Stanley E Speer
_________________________ October 10, 1997
Stanley E. Speer
Chief Financial Officer
(Principal Financial and Accounting Officer)
/s/ Dwight W. Makins
_________________________ October 10, 1997
Dwight W. Makins, Director
/s/ Barton Beek
_________________________ October 10, 1997
Barton Beek, Director
/s/ Mitt Parker
_________________________ October 10, 1997
Mitt Parker, Director
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Amendment No. 2 to Registration Statement No.
333-31103 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Los Angeles, State of California, on
October 10, 1997.
CADIZ LAND COMPANY, INC.
/s/ Keith Brackpool
________________________________
By: Keith Brackpool
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933,
this Amendment No. 2 to Registration Statement No. 333-31103 has been signed
by the following persons in the capacities and on the dates indicated.
Name and Position Date
------------------- ------------
/s/ Dwight W. Makins
_________________________ October 10, 1997
Dwight W. Makins
Chairman of the Board
/s/ Keith Brackpool
_________________________ October 10, 1997
Keith Brackpool
Chief Executive Officer and Director
(Principal Executive Officer)
/s/ Russ Hammond
_________________________ October 10, 1997
Russ Hammond, Director
/s/ Murray H. Hutchison
_________________________ October 10, 1997
Murray H. Hutchison, Director
/s/ Stephen D. Weinress
_________________________ October 10, 1997
Stephen D. Weinress, Director
/s/ Stanley E. Speer
_________________________ October 10, 1997
Stanley E. Speer
Chief Financial Officer
(Principal Financial Accounting Officer)
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Amendment No. 2 to Registration Statement No.
333-31103 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Los Angeles, State of California, on
October 10, 1997.
COACHELLA GROWERS, INC.
/s/ Timothy J. Shaheen
____________________________
By: Timothy J. Shaheen
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933,
this Amendment No. 2 to Registration Statement No. 333-31103 has been signed
by the following persons in the capacities and on the dates indicated.
Name and Position Date
------------------ _______
/s/ Timothy J. Shaheen
_________________________ October 10, 1997
Timothy J. Shaheen
Chief Executive Officer and Director
(Principal Executive Officer)
/s/ Stanley E. Speer
_________________________ October 10, 1997
Stanley E. Speer
Chief Financial Officer and Secretary
(Principal Financial and Accounting Officer)
/s/ Keith Brackpool
_________________________ October 10, 1997
Keith Brackpool, Chairman
/s/ Dwight W. Makins
_________________________ October 10, 1997
Dwight W. Makins, Director
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Amendment No. 2 to Registration Statement No.
333-31103 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Los Angeles, State of California, on
October 10, 1997.
Sun Desert, Inc.
/s/ Timothy J. Shaheen
____________________________
By: Timothy J. Shaheen
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933,
this Amendment No. 2 to Registration Statement No. 333-31103 has been signed
by the following persons in the capacities and on the dates indicated.
Name and Position Date
------------------ _______
/s/ Timothy J. Shaheen
_________________________ October 10, 1997
Timothy J. Shaheen
Chief Executive Officer and Director
(Principal Executive Officer)
/s/ Stanley E. Speer
_________________________ October 10, 1997
Stanley E. Speer
Chief Financial Officer and Secretary
(Principal Financial and Accounting Officer)
/s/ Keith Brackpool
_________________________ October 10, 1997
Keith Brackpool, Chairman
/s/ Dwight W. Makins
_________________________ October 10, 1997
Dwight W. Makins, Director
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Amendment No. 2 to Registration Statement No.
333-31103 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Los Angeles, State of California, on
October 10, 1997.
SUN WORLD/RAYO
/s/ Timothy J. Shaheen
____________________________
By: Timothy J. Shaheen
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933,
this Amendment No. 2 to Registration Statement No. 333-31103 has been signed
by the following persons in the capacities and on the dates indicated.
Name and Position Date
------------------ _______
/s/ Timothy J. Shaheen
_________________________ October 10, 1997
Timothy J. Shaheen
Chief Executive Officer and Director
(Principal Executive Officer)
/s/ Stanley E. Speer
_________________________ October 10, 1997
Stanley E. Speer
Chief Financial Officer and Secretary
(Principal Financial and Accounting Officer)
/s/ Keith Brackpool
_________________________ October 10, 1997
Keith Brackpool, Chairman
/s/ Dwight W. Makins
_________________________ October 10, 1997
Dwight W. Makins, Director
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Amendment No. 2 to Registration Statement No.
333-31103 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Los Angeles, State of California, on
October 10, 1997.
SUN WORLD MANAGEMENT CORPORATION
/s/ Timothy J. Shaheen
____________________________
By: Timothy J. Shaheen
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933,
this Amendment No. 2 to Registration Statement No. 333-31103 has been signed
by the following persons in the capacities and on the dates indicated.
Name and Position Date
------------------ _______
/s/ Timothy J. Shaheen
_________________________ October 10, 1997
Timothy J. Shaheen
Chief Executive Officer and Director
(Principal Executive Officer)
/s/ Stanley E. Speer
_________________________ October 10, 1997
Stanley E. Speer
Chief Financial Officer and Secretary
(Principal Financial and Accounting Officer)
/s/ Keith Brackpool
_________________________ October 10, 1997
Keith Brackpool, Chairman
/s/ Dwight W. Makins
_________________________ October 10, 1997
Dwight W. Makins, Director
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Amendment No. 2 to Registration Statement No.
333-31103 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Los Angeles, State of California, on
October 10, 1997.
SUN WORLD BRANDS
/s/ Timothy J. Shaheen
____________________________
By: Timothy J. Shaheen
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933,
this Amendment No. 2 to Registration Statement No. 333-31103 has been signed
by the following persons in the capacities and on the dates indicated.
Name and Position Date
------------------ _______
/s/ Timothy J. Shaheen
_________________________ October 10, 1997
Timothy J. Shaheen
Chief Executive Officer and Director
(Principal Executive Officer)
/s/ Stanley E. Speer
_________________________ October 10, 1997
Stanley E. Speer
Chief Financial Officer and Secretary
(Principal Financial and Accounting Officer)
/s/ Keith Brackpool
_________________________ October 10, 1997
Keith Brackpool, Chairman
/s/ Dwight W. Makins
_________________________ October 10, 1997
Dwight W. Makins, Director
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 2 to Registration Statement No. 333-31103
to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Los Angeles, State of California, on October 10, 1997.
AGRI-LAND REALTY, INC.
/s/ Timothy J. Shaheen
____________________________
By: Timothy J. Shaheen
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933,
this Amendment No. 2 to Registration Statement No. 333-31103 has been signed
by the following persons in the capacities and on the dates indicated.
Name and Position Date
------------------ _______
/s/ Timothy J. Shaheen
_________________________ October 10, 1997
Timothy J. Shaheen
Chief Executive Officer and Director
(Principal Executive Officer)
/s/ Stanley E. Speer
_________________________ October 10, 1997
Stanley E. Speer
Chief Financial Officer and Secretary
(Principal Financial and Accounting Officer)
/s/ Keith Brackpool
_________________________ October 10, 1997
Keith Brackpool, Chairman
/s/ Dwight W. Makins
_________________________ October 10, 1997
Dwight W. Makins, Director
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Amendment No. 2 to Registration Statement No.
333-31103 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Los Angeles, State of California, on
October 10, 1997.
BIG VALLEY LEASING, INC.
/s/ Timothy J. Shaheen
____________________________
By: Timothy J. Shaheen
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933,
this Amendment No. 2 to Registration Statement No. 333-31103 has been signed
by the following persons in the capacities and on the dates indicated.
Name and Position Date
------------------ _______
/s/ Timothy J. Shaheen
_________________________ October 10, 1997
Timothy J. Shaheen
Chief Executive Officer and Director
(Principal Executive Officer)
/s/ Stanley E. Speer
_________________________ October 10, 1997
Stanley E. Speer
Chief Financial Officer and Secretary
(Principal Financial and Accounting Officer)
/s/ Keith Brackpool
_________________________ October 10, 1997
Keith Brackpool, Chairman
/s/ Dwight W. Makins
_________________________ October 10, 1997
Dwight W. Makins, Director
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Amendment No. 2 to Registration Statement No.
333-31103 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Los Angeles, State of California, on
October 10, 1997.
DINUBA PACKING CORPORATION
/s/ Timothy J. Shaheen
____________________________
By: Timothy J. Shaheen
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933,
this Amendment No. 2 to Registration Statement No. 333-31103 has been signed
by the following persons in the capacities and on the dates indicated.
Name and Position Date
------------------ _______
/s/ Timothy J. Shaheen
_________________________ October 10, 1997
Timothy J. Shaheen
Chief Executive Officer and Director
(Principal Executive Officer)
/s/ Stanley E. Speer
_________________________ October 10, 1997
Stanley E. Speer
Chief Financial Officer and Secretary
(Principal Financial and Accounting Officer)
/s/ Keith Brackpool
_________________________ October 10, 1997
Keith Brackpool, Chairman
/s/ Dwight W. Makins
_________________________ October 10, 1997
Dwight W. Makins, Director
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Amendment No. 2 to Registration Statement No.
333-31103 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Los Angeles, State of California, on
October 10, 1997.
PACIFIC FARM SERVICE, INC.
/s/ Timothy J. Shaheen
____________________________
By: Timothy J. Shaheen
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933,
this Amendment No. 2 to Registration Statement No. 333-31103 has been signed
by the following persons in the capacities and on the dates indicated.
Name and Position Date
------------------ _______
/s/ Timothy J. Shaheen
_________________________ October 10, 1997
Timothy J. Shaheen
Chief Executive Officer and Director
(Principal Executive Officer)
/s/ Stanley E. Speer
_________________________ October 10, 1997
Stanley E. Speer
Chief Financial Officer and Secretary
(Principal Financial and Accounting Officer)
/s/ Keith Brackpool
_________________________ October 10, 1997
Keith Brackpool, Chairman
/s/ Dwight W. Makins
_________________________ October 10, 1997
Dwight W. Makins, Director
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Amendment No. 2 to Registration Statement No.
333-31103 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Los Angeles, State of California, on
October 10, 1997.
SFC MARKETING CORPORATION
/s/ Timothy J. Shaheen
____________________________
By:Timothy J. Shaheen
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933,
this Amendment No. 2 to Registration Statement No. 333-31103 has been signed
by the following persons in the capacities and on the dates indicated.
Name and Position Date
------------------ _______
/s/ Timothy J. Shaheen
_________________________ October 10, 1997
Timothy J. Shaheen
Chief Executive Officer and Director
(Principal Executive Officer)
/s/ Stanley E. Speer
_________________________ October 10, 1997
Stanley E. Speer
Chief Financial Officer and Secretary
(Principal Financial and Accounting Officer)
/s/ Keith Brackpool
_________________________ October 10, 1997
Keith Brackpool, Chairman
/s/ Dwight W. Makins
_________________________ October 10, 1997
Dwight W. Makins, Director
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Amendment No. 2 to Registration Statement No.
333-31103 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Los Angeles, State of California, on
October 10, 1997.
SUN HARVEST, INC.
/s/ Timothy J. Shaheen
____________________________
By: Timothy J. Shaheen
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933,
this Amendment No. 2 to Registration Statement No. 333-31103 has been signed
by the following persons in the capacities and on the dates indicated.
Name and Position Date
------------------ _______
/s/ Timothy J. Shaheen
_________________________ October 10, 1997
Timothy J. Shaheen
Chief Executive Officer and Director
(Principal Executive Officer)
/s/ Stanley E. Speer
_________________________ October 10, 1997
Stanley E. Speer
Chief Financial Officer and Secretary
(Principal Financial and Accounting Officer)
/s/ Keith Brackpool
_________________________ October 10, 1997
Keith Brackpool, Chairman
/s/ Dwight W. Makins
_________________________ October 10, 1997
Dwight W. Makins, Director
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Amendment No. 2 to Registration Statement No.
333-31103 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Los Angeles, State of California, on
October 10, 1997.
SUN WORLD AVOCADO
/s/ Timothy J. Shaheen
____________________________
By: Timothy J. Shaheen
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933,
this Amendment No. 2 to Registration Statement No. 333-31103 has been signed
by the following persons in the capacities and on the dates indicated.
Name and Position Date
------------------ _______
/s/ Timothy J. Shaheen
_________________________ October 10, 1997
Timothy J. Shaheen
Chief Executive Officer and Director
(Principal Executive Officer)
/s/ Stanley E. Speer
_________________________ October 10, 1997
Stanley E. Speer
Chief Financial Officer and Secretary
(Principal Financial and Accounting Officer)
/s/ Keith Brackpool
_________________________ October 10, 1997
Keith Brackpool, Chairman
/s/ Dwight W. Makins
_________________________ October 10, 1997
Dwight W. Makins, Director
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Amendment No. 2 to Registration Statement No.
333-31103 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Los Angeles, State of California, on
October 10, 1997.
SUN WORLD EXPORTS, INC.
/s/ Timothy J. Shaheen
____________________________
By: Timothy J. Shaheen
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933,
this Amendment No. 2 to Registration Statement No. 333-31103 has been signed
by the following persons in the capacities and on the dates indicated.
Name and Position Date
------------------ _______
/s/ Timothy J. Shaheen
_________________________ October 10, 1997
Timothy J. Shaheen
Chief Executive Officer and Director
(Principal Executive Officer)
/s/ Stanley E. Speer
_________________________ October 10, 1997
Stanley E. Speer
Chief Financial Officer and Secretary
(Principal Financial and Accounting Officer)
/s/ Keith Brackpool
_________________________ October 10, 1997
Keith Brackpool, Chairman
/s/ Dwight W. Makins
_________________________ October 10, 1997
Dwight W. Makins, Director
INDEX TO FINANCIAL STATEMENT SCHEDULES
Schedule I: Condensed Financial Information...................S-2
Scheudle II: Valuation and Qualify Accounts....................S-5
SCHEDULE I - CONDENSED FINANCIAL INFORMATION of REGISTRANT
Consolidated Balance Sheet
December 31, 1996
($ in thousands)
Assets
------
Current assets:
Cash and cash equivalents $ 2,132
Accounts receivable, net 31
Inventories 7
Due from subsidiary 332
Prepaid expenses and other 274
----------
Total current assets 2,776
Investment in subsidiary 42,460
Property, plant and equipment, net 11,241
Land held for development 12,671
Water rights and transfer and
storage projects 2,683
Other assets 150
Excess purchase price over net
assets acquired, net 4,981
----------
$ 76,962
==========
Liabilities, Redeemable Preferred Stock, Preferred Stock,
Common Stock & Other Stockholders' Equity
--------------------------------------------------------
Current liabilities:
Accounts payable $ 1,332
Accrued liabilities 1,513
Deferred revenue 375
Long-term debt, current portion 518
----------
Total current liabilities 3,738
Long-term debt 17,992
Other Liabilities 60
Commitments and contingencies
Series A redeemable preferred stock -
$.01 par value; ($1,000 liquidation value);
60,000 shares authorized;
27,431 shares issued and outstanding at
December 31, 1996 27,431
Preferred stock - $.01 par value;
40,000 shares authorized,
340 shares issued and outstanding at
December 31, 1996 -
Common stock - $.01 par value; 45,000,000
shares authorized; shares issued and
outstanding - 23,445,868 at
December 31, 1996 and 19,247,611 at
March 31, 1996 234
Additional paid-in capital 88,574
Accumulated deficit (61,067)
--------
$ 76,962
==========
See accompanying notes to the consolidated financial statements.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION of REGRISTRANT (Continued)
Consolidated Statement of Cash Flows
($ in thousands)
For the Nine Months
Ended
December 31, 1996
-------------------
Cash flows from operating activities:
Net loss $ (5,174)
Adjustments to reconcile net
loss to cash used for
operating activities:
Depreciation and amortization 1,388
Interest capitalized to debt 481
Changes in operating assets
and liabilities:
Decrease in accounts receivable 411
Decrease in inventories 259
Increase in due from subsidiary (923)
Increase in prepaid expenses and other (317)
Decrease in accounts payable (441)
Increase in accrued liabilities 219
Increase in deferred revenue 375
---------
Net cash used for operating
activities (3,722)
---------
Cash flows from investing activities:
Additions to property, plant
and equipment (27)
Land purchase and development (490)
Water transfer and storage projects (187)
Acquisition of Sun World (36,587)
--------
Net cash used for investing
activities (37,291)
--------
Cash flows from financing activities:
Net proceeds from issuance of stock 37,761
Proceeds from short-term debt 347
Principal payments on short-term debt (17)
Dividends paid on conversion of
preferred stock (99)
--------
Net cash provided by
financing activities 37,992
Net decrease in cash and cash equivalents (3,021)
Cash and cash equivalents, beginning of period 5,153
--------
Cash and cash equivalents, end of period $ 2,132
=========
See accompanying notes to the consolidated financial statements.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION of REGISTRANT (Continued)
Consolidated Statement of Operations
(In thousands except per share data)
For the Nine Months
Ended
December 31, 1996
-----------------
Revenues $ 1,278
--------
Costs and expenses:
Cost of sales 1,329
Resource development 1,133
Landfill prevention activities 394
General and administrative 2,073
Depreciation 598
Amortization 175
--------
Total costs and expenses 5,702
--------
Operating loss (4,424)
Interest expense, net 1,391
--------
Net loss before income taxes (5,815)
Income tax benefit 641
--------
Net Loss (5,174)
Less: Preferred stock dividends (674)
Imputed dividend on preferred stock (2,451)
---------
Net loss applicable to common stock $ (8,299)
=========
Net loss per common share $ (.41)
=========
Weighted average shares outstanding 20,500
=========
See accompanying notes to the consolidated financial statements.
SCHEDULE II - VALUATION & QUALIFYING ACCOUNTS
For the nine ended December 31, 1996 and the years ended
March 31, 1996 and 1995
($ in thousands)
Additions
Balance Charge -----------------
at to Charge Balance
Beginning Costs to at
of and Other Deduc- End of
Period Expenses Accounts tions Period
----------- -------- -------- ----- --------
Nine months ended
December 31, 1996
Allowance for
doubtful accounts $ -0- $ 107 $ 373 $ -0- $ 480
Amortization of excess
of purchase price over
net assets acquired 1,851 175 -0- -0- 2,026
-------- ------ ------ ------ ------
$ 1,851 $ 282 $ 373 $ -0- $ 2,506
======== ====== ====== ====== =======
Fiscal year ended
March 31, 1996
Allowance for
doubtful accounts $ -0- $ -0- $ -0- $ -0- $ -0-
Amortization of excess
of purchase price over
net assets acquired 1,617 234 -0- -0- 1,851
-------- ------- ------ ------ ------
$ 1,617 $ 234 $ -0- $ -0- $ 1,851
======== ======= ====== ====== =======
Fiscal year ended
March 31, 1995
Allowance for
doubtful accounts $ -0- $ -0- $ -0- $ -0- $ -0-
Amortization of excess
of purchase price over
net assets acquired 1,383 234 -0- -0- 1,617
-------- ------- ------- ------- -------
$ 1,383 $ 234 $ -0- $ -0- $ 1,617
======== ======= ======= ======= =======
EXHIBIT 4.2
-----------
AMENDMENT TO INDENTURE
This AMENDMENT TO INDENTURE ("Amendment") is entered into as of
October 9, 1997 by and between Sun World International, Inc. ("Issuer"),
Cadiz Land Company, Inc. ("Parent Guarantor"), Agri-land Realty, Inc.,
Sun World Management Corporation, Sun World Avocado, Sun World Export,
Inc., Sun World Brands, Sun World/Rayo, Dinuba Packing Corporation, SFC
Marketing Corporation, Sun Harvest, Inc., Pacific Farm Service, Inc., Big
Valley Leasing, Inc., Sun Desert, Inc., and Coachella Growers
(collectively, "Subsidiary Guarantors"), and IBJ Schroder Bank & Trust
Company (the "Trustee"). The parties to this Amendment are hereinafter
sometimes referred to collectively as the "Parties".
RECITALS:
--------
WHEREAS, the Parties have entered into an Indenture dated as of
April 16, 1997 (the "Indenture"); and
WHEREAS, the Parties wish to amend the Indenture in order to correct
certain inconsistencies and defects within the Indenture and between the
Indenture and the Collateral Documents (as defined in the Indenture); and
WHEREAS, this Amendment will serve to accurately reflect the intent
of the Parties and will not adversely affect the legal rights of any
Holder of a Note (as defined in the Indenture); and
WHEREAS, pursuant to Section 9.01 of the Indenture, this Amendment
may be entered into by the Parties without the consent of any Holder of a
Note;
NOW THEREFORE, in consideration of the above recitals, the promises
and the mutual representations, warranties, covenants and agreements
herein contained, the Parties hereby agree as follows:
1. AMENDMENT OF INDENTURE. The Indenture is hereby amended as set
forth below:
a. EXCLUDED ASSETS. The definition of the term "Excluded
Assets" as it appears in Section 1.01 of the Indenture is hereby amended
in its entirety as follows:
"Excluded Assets" means (i) all of the assets of Parent other
than the stock of the Issuer, (ii) the Revolving Credit Agreement
Collateral, (iii) any Proceeds (as defined in the Uniform
Commercial Code in effect in the State of California ("UCC"))
or products arising out of Revolving Credit Agreement
Colateral, (iv) rights to payment of money or Chattel Paper
(as defined in the UCC) arising from the sale of Revolving
Credit Agreement Collateral or insurance proceeds payable
in respect of Revolving Credit Agreement Collateral, except
to the extent that any such Proceeds or products (including
money and Chattel Paper) constitute or are deemed to constitute
Collateral Proceeds, (v) the Zenith Collateral, and (vi) certain
other assets of the Issuer and its Subsidiaries, the value of
which is immaterial in the aggregate, as set forth in the
Collateral Documents."
b. SECTION 10.02(A). Section 10.02(a) of the Indenture is
hereby amended in its entirety as follows:
"(a) The Issuer and the Guarantors shall take or cause to be
taken all action required to perfect, maintain, preserve and
protect the Lien on and security interest in the Collateral
granted by the Collateral Documents (subject only to Liens
expressly permitted by this Indenture and the Collateral
Documents), including without limitation, the filing of
financing statements, continuation statements and any
instruments of further assurance, in such manner and in such
places as may be required by law fully to preserve and protect
the rights of the Holders and the Trustee under this Indenture
and the Collateral Documents to all property comprising the
Collateral; provided, however, that any requirements as to
perfection shall be solely as set forth in the Collateral
Documents. The Issuer and the Guarantors shall from time
to time promptly pay all financing and continuation statement
recording, registration and/or filing fees, charges and
taxes relating to this Indenture and the Collateral Documents, any
amendments thereto and any other instruments of further assurance
required hereunder or pursuant to the Collateral Documents. The
Trustee shall not be responsible for any failure to so register,
file or record."
2. EXISTING INDENTURE. Except as otherwise amended or modified
herein or hereby, the provisions of the Indenture are hereby reaffirmed
and shall remain in full force and effect.
IN WITNESS WHEREOF, each of the Parties has caused this Amendment to
Indenture to be executed and delivered by their duly authorized officers
as of the date first above written.
SUN WORLD INTERNATIONAL, INC.
By: /s/ Stanley E. Speer
----------------------------------
Name: Stanley E. Speer
________________________________
Title: Chief Financial Officer
________________________________
CADIZ LAND COMPANY, INC.
By: /s/ Stanley E. Speer
----------------------------------
Name: Stanley E. Speer
________________________________
Title: Chief Financial Officer
________________________________
AGRI-LAND REALTY, INC.
SUN WORLD MANAGEMENT CORPORATION
SUN WORLD AVOCADO
SUN WORLD EXPORT, INC.
SUN WORLD BRANDS
SUN WORLD/RAYO
DINUBA PACKING CORPORATION
SFC MARKETING CORPORATION
SUN HARVEST, INC.
PACIFIC FARM SERVICE, INC.
BIG VALLEY LEASING, INC.
SUN DESERT, INC.
COACHELLA GROWERS
By: /s/ Stanley E. Speer
----------------------------------
Name: Stanley E. Speer
________________________________
Title: Chief Financial Officer
________________________________
IBJ SCHRODER BANK & TRUST COMPANY,
as Trustee
By: /s/ Luis Perez
_________________________________
Name: Luis Perez
_________________________________
Title: Assistant Vice President
________________________________
EXHIBIT 5.1
-----------
Miller & Holguin
Letterhead
October 8, 1997
Re: Registration Statement on Form S-4 (File No. 333-31103)
Ladies and Gentlemen:
We have acted as counsel to Sun World International, Inc., a Delaware
corporation (the "Company"), Cadiz Land Company, Inc., Sun Desert, Inc.,
Big Valley Leasing, Inc., Sun Harvest, Inc. (each a Delaware corporation),
Coachella Growers, Inc., Sun World Brands, Sun World Management Corp., Sun
World/Rayo, Agri-Land Realty, Inc., Dinuba Packing Corporation, Pacific
Farm Service, Inc., SFC Marketing Corporation, Sun World Avocado and Sun
World Export, Inc. (each a California corporation) (collectively the
"Guarantors"), in connection with the preparation and filing of the above-
captioned Registration Statement on Form S-4 (the "Registration Statement")
under the Securities Act of 1933, as amended (the "Securities Act"),
relating to the proposed offer by the Company (the "Exchange Offer") to
exchange $115,000,000 aggregate principal amount of 11 1/4% First Mortgage
Notes due 2004 ("Exchange Notes") for a like amount of its outstanding 11
1/4% First Mortgage Notes due 2004 ("Old Notes"). The Exchange Notes will
be guaranteed ("Guarantees") on a full and unconditional basis by the
Guarantors. The Exchange Notes will be issued pursuant to the Indenture,
dated April 16, 1997, among the Company, the Guarantors, and IBJ Schroder
Bank & Trust Company (the "Indenture"), which has been filed with the
Commission as an Exhibit to the Registration Statement.
We have examined the Registration Statement and the Indenture. In
addition, we have examined, and have relied as to matters of fact upon, the
originals or copies, certified or otherwise identified to our satisfaction,
of such corporate records, agreements, documents and other instruments and
such certificates or comparable documents of public officials and of
officers and representatives of the Company, and have made such other and
further investigations, as we have deemed relevant and necessary as a basis
for the opinion hereinafter set forth.
Based on the foregoing, we are of the opinion that:
1. The Exchange Notes have been duly authorized by the Company and,
when issued and delivered in exchange for the Old Notes in the manner
described in the Registration Statement and when executed and authenticated
as specified in the Indenture, will be duly issued and delivered and will
constitute valid and binding obligations of the Company.
2. The Guarantees of each Guarantor, when issued and delivered in
connection with the exchange of the Exchange Notes for the Old Notes in the
manner described in the Registration Statement and when executed and
authenticated as specified in the Indenture, will be duly issued and
delivered and will constitute valid and binding obligations of the
respective Guarantor.
Our opinion set forth above is subject to the effects of bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and other
similar laws relating to or affecting creditors' rights generally, general
equitable principles (whether considered in a proceeding in equity or at
law) and an implied covenant of good faith and fair dealing.
We are members of the Bar of the State of California and we do not express
any opinion herein concerning any law other than the law of the State of
California, the General Corporation Law of the State of Delaware and the
federal law of the United States.
We consent to the filing of this opinion as an exhibit to the Registration
Statement and to the use of our name under the heading "Legal Matters" in
the prospectus forming a part of the Registration Statement.
Very truly yours,
/s/ Miller & Holguin
--------------------
Miller & Holguin
EXHIBIT 8.1
-----------
Miller & Holguin
Letterhead
October 8, 1997
Sun World International, Inc.
16350 Driver Road
Bakersfield, California 93308
Ladies and Gentlemen:
We have acted as counsel for Sun World International, Inc., a Delaware
corporation (the "Company"), in connection with the Registration Statement
on Form S-4 (the "Registration Statement") filed by the Company with the
Securities and Exchange Commission (the "Commission") under the Securities
Act of 1933, as amended (the "Securities Act"), relating to the issuance by
the Company of $115,000,000 aggregate principal amount of 11 1/4% First
Mortgage Notes due 2004 ("Exchange Notes") which are to be offered by the
Company in exchange for $115,000,000 aggregate principal amount of its
outstanding 11 1/4% First Mortgage Notes due 2004 (the "Old Notes").
We have examined the Registration Statement and the Indenture dated as of
April 16, 1997 (the "Indenture") between the Company and IBJ Schroder Bank
and Trust Company, as Trustee (the "Trustee"), which has been filed with
the Commission as an Exhibit to the Registration Statement. In addition,
we have examined, and have relied as to matters of fact upon, the originals
or copies, certified or otherwise identified to our satisfaction, of such
corporate records, agreements, documents and other instruments and such
certificates or comparable documents of public officials and of officers
and representatives of the Company, and have made such other and further
investigations, as we have deemed relevant and necessary as a basis for the
opinion hereinafter set forth.
We have assumed the genuiness of all signatures, the legal capacity of
natural persons, the authenticity of all documents submitted to us as
originals and the conformity to original documents of all documents
submitted to us as certified or photostatic copies, and the authenticity of
the originals of such latter documents.
Based on the foregoing, and subject to the qualifications and limitations
stated herein, our opinion is as set forth in the Prospectus in the
Registration Statement under the heading "United States Federal Tax
Consequences."
We are members of the Bar of the State of California and we do not express
any opinion herein concerning any law other than the federal law of the
United States.
We hereby consent to the use of this opinion as an Exhibit to the
Registration Statement and to the reference to our firm under the caption
"United Federal States Tax Consequences" in the Prospectus included
therein.
Very truly yours,
/s/ Miller & Holguin
--------------------
Miller & Holguin
EXHIBIT 23.1
----------------
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of
this Amendment No. 2 to Registration Statement on Form S-4
(No. 333-31103) of Sun World International, Inc. of our report
dated March 7, 1997, except for Notes 7 and 13, which are as of April 16,
1997, relating to the financial statements of Cadiz Land Company, Inc.,
which appears in such Prospectus. We also consent to the application of
such report to the Financial Statement Schedules for the nine months ended
December 31, 1996 and the two years ended March 31,1996 listed under
Item 21(b) of this Registration Statement when such schedules are read
in conjunction with the financial statements referred to in our report.
The audits referred to in such report also included these schedules.
We also consent to the use of our reports dated November 22 1996 and
February 28, 1997, except for Note 12, which is as of April 16, 1997,
relating to the financial statements of Sun World International, Inc.,
which appear in such Prospectus. We also consent to the references to
us under the headings "Experts" and "Selected Financial Data" in such
Prospectus. However, it should be noted that Price Waterhouse LLP has
not prepared or certified such "Selected Financial Data."
/s/ Price Waterhouse LLP
- -------------------------
Price Waterhouse LLP
Los Angeles, California
October 6, 1997
EXHIBIT 23.2
----------------
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 2 to Registration
Statement No. 333-31103 of Sun World International, Inc. on Form S-4
of our report dated September 20, 1996 (which expresses an
unqualified opinion and includes an explanatory paragraph referring
to Sun World's bankruptcy and reorganization) with respect to the
consolidated financial statements of Sun World International, Inc.
for the years ended December 31, 1995 and 1994, appearing in the
Prospectus, which is a part of this Registration Statement, and to
the reference to us under the heading "Experts" in such Prospectus.
/s/ DELOITTE & TOUCHE LLP
- ---------------------------
Deloitte & Touche LLP
Fresno, California
October 6, 1997
EXHIBIT 23.3
------------
CONSENT OF COUNSEL
We hereby consent to the references to our firm under the captions "Risk
Factors - Certain Limitations Under State Law," "Risk Factors - Certain
Bankruptcy Limitations" and "Risk Factors - Secured Lenders Under
Environmental Laws" in the Prospectus constituting part of this Amendment
No. 2 to Registration Statement on Form S-4 (File No. 333-31103) of Sun
World International, Inc.
/s/ Miller & Holguin
- ----------------------
Miller & Holguin
Los Angeles, California
October 8, 1997
EXHIBIT 99.2
----------------------
FORM OF
LETTER OF TRANSMITTAL
for
11 1/4% First Mortgage Notes due 2004
of
SUN WORLD INTERNATIONAL, INC.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON,______________, 1997 (the "EXPIRATION DATE") UNLESS EXTENDED.
EXCHANGE AGENT:
IBJ SCHRODER BANK & TRUST COMPANY
By Hand/Overnight Express:
IBJ Schroder Bank & Trust
Company
One State Street
New York, New York 10004
Attention: Securities
Processing
Window, Subcellar One (SC-1)
By Mail:
(insured or registered mail
recommended)
IBJ Schroder Bank & Trust
Company
P.O. Box 84
Bowling Green Station
New York, New York 10274-0084
Attention: Reorganization
Operations Department
By Facsimile Transmission:
(212) 858-2611
(For Eligible Institutions Only)
To Confirm receipt:
(212) 858-2103
Delivery of this Letter of Transmittal to an address other than as
set forth above or transmission of instructions via facsimile
transmission to a number other than as set forth above will not
constitute a valid delivery.
The undersigned acknowledges receipt of the Prospectus, dated
____________, 1997 (the "Prospectus"), of Sun World International, Inc.
("Sun World"), and this Letter of Transmittal (the "Letter of
Transmittal"), which together describe Sun World's offer (the "Exchange
Offer") to exchange $1,000 principal amount of its 11 1/4% First
Mortgage Notes due 2004 (the "Exchange Notes") for each $1,000 principal
amount of its outstanding 11 1/4% First Mortgage Notes due 2004 (the
"Old Notes"). Capitalized terms used but not defined herein have the
meanings given to them in the Prospectus.
The undersigned has checked the appropriate boxes below and signed
this Letter of Transmittal to indicate the action the undersigned
desires to take with respect to the Exchange Offer.
PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL AND THE PROSPECTUS
CAREFULLY BEFORE CHECKING ANY BOX BELOW.
YOUR BANK OR BROKER CAN ASSIST YOU IN COMPLETING THIS FORM. THE
INSTRUCTIONS INCLUDED WITH THIS LETTER OF TRANSMITTAL MUST BE FOLLOWED.
QUESTIONS AND REQUESTS FOR ASSISTANCE OR FOR ADDITIONAL COPIES OF THE
PROSPECTUS AND THIS LETTER OF TRANSMITTAL MAY BE DIRECTED TO THE
EXCHANGE AGENT.
List below the Old Notes to which this Letter of Transmittal
relates. If the space provided below is inadequate, the Certificate
Numbers and Principal Amounts should be listed on a separate signed
schedule affixed hereto.
DESCRIPTION OF OLD NOTES TENDERED HEREWITH
Aggregate
Name(s) and Principal
Address(es)of Amount Principal
Registered Holder(s) Certificate Represented Amount
(Please fill in) Number(s) by Old Notes* Tendered**
____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_________________________Total_______________________________________
* Need not be completed by book-entry holders.
** Unless otherwise indicated, the holder will be deemed to have
tendered the full aggregate principal amount represented by such
Old Notes. See instruction 2.
This Letter of Transmittal is to be used whether the Old Notes
are to be physically delivered herewith or whether guaranteed
delivery procedures or book-entry delivery procedures are being used,
pursuant to the procedures set forth in "The Exchange Offer -
Tender Procedure " in the Prospectus. If delivery
of Old Notes is to be made by book-entry transfer to the account
maintained by the Exchange Agent at The Depository Trust Company (the
"Depository"), this Letter of Transmittal need not be manually
executed, provided, however, that tenders of Old Notes must be
effected in accordance with the procedures mandated by the Depository
and the procedures set forth in the Prospectus under the caption "The
Exchange Offer - Tender Procedure."
Registered holders whose Old Notes are not immediately available
or who cannot deliver their Old Notes and all other required
documents to the Exchange Agent on or prior to the Expiration Date,
or if the procedures for delivery by book-entry transfer cannot be
completed on a timely basis, may tender their Notes according to the
guaranteed delivery procedures set forth in the Prospectus under the
caption "The Exchange Offer - Tender Procedure."
/ / CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO AN ACCOUNT MAINTAINED BY THE EXCHANGE
AGENT WITH THE BOOK ENTRY TRANSFER FACILITY AND COMPLETE THE
FOLLOWING:
Name of Tendering Institution: ____________________________
Broker-dealers who did not so acquire Old Notes are not eligible to
participate in the Exchange Offer
/ / The Depository Trust Company
Account Number: ______________________________________________
Transaction Code Number: ______________________________________
/ / CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO
A NOTICE OF GUARANTEED DELIVERY AND DELIVERED TO THE EXCHANGE
AGENT AND COMPLETE THE FOLLOWING:
Name of Registered Holder(s): _________________________________
Name of Eligible Institution that Guaranteed Delivery: _________
Date of Execution of Notice of Guaranteed Delivery: ___________
If Delivered by Book-Entry Transfer:
Account Number: _______________________________________________
/ / CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10
ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY
AMENDMENTS OR SUPPLEMENTS THERETO.
Name: _______________________________________________________
Address: ______________________________________________________
(Including Zip Code)
If the undersigned is not a broker-dealer, the undersigned
represents that it is not engaged in, and does not intend to engage
in, a distribution of Exchange Notes. If the undersigned is a
broker-dealer that will receive Exchange Notes for its own account in
exchange for Old Notes that were acquired as a result of market-making
activities or other trading activities, it acknowledges that
it will deliver a prospectus in connection with any resale of such
Exchange Notes; however, by so acknowledging and by delivering a
prospectus, the undersigned will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act of 1933, as
amended (the "Securities Act"). Broker-dealers who did not so
acquire Old Notes are not eligible to participate in the Exchange
Offer.
SPECIAL EXCHANGE INSTRUCTIONS
(See Instructions 4 and 5)
/ / CHECK HERE IF EXCHANGE NOTES ARE TO BE DELIVERED TO A PERSON
OTHER THAN THE PERSON SIGNING THE LETTER OF TRANSMITTAL:
Name: ____________________________________________________
Address: ___________________________________________________
(Including Zip Code)
Employer Identification or Social Security Number
(Complete the Substitute Form W-9)
SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 4 and 5)
/ / CHECK HERE IF EXCHANGE NOTES ARE TO BE DELIVERED TO AN ADDRESS
DIFFERENT FROM THAT LISTED ELSEWHERE IN THIS LETTER OF
TRANSMITTAL:
Name: ____________________________________________
Address: ______________________________________________________
(Including Zip Code)
- ---------------------------------------------------------------------
Employer Identification or Social Security Number
(Complete the Substitute Form W-9)
PAYER'S NAME: ______________________
SUBSTITUTE | Part 1--PLEASE PROVIDE YOUR TIN IN | Social Security Number
| THE BOX AT THE RIGHT AND CERTIFY |
Form W-9 | BY SIGNING AND DATING BELOW | OR____________________
| | Employer Identification
Department | | Number
of the | ------------------------------------------------------------
Treasury | Service Part 2--Please check the box at the right if you have
Internal | applied and are awaiting receipt of, your TIN / /
Revenue |
Payer's |
Request |
for Tax- |
Payer |
Identification
Number (TIN|
- -------------------------------------------------------------------------
Certification--under penalties of perjury, I certify that:
(1) The number shown on this form is my correct Taxpayer Identification
Number (or I am waiting for a number to be issued to me), and
(2) I am not subject to backup withholding either because I have not
been notified by the IRS that I am subject to backup withholding as
a result of a failure to report all interests or dividends, or the
IRS has notified me that I am no longer subject to backup
withholding.
Certification Instructions--You must cross out item (2) above if you have
been notified by the IRS that you are subject to backup withholding
because of underreporting interest or dividends on your tax return.
However, if after being notified by the IRS that you were subject to
backup withholding you received another notification from the IRS that
you are no longer subject to backup withholding, do not cross out item
(2). (Also see Certification under Specific Instructions in the enclosed
Guidelines.)
SIGNATURE_______________________________DATE______________________, 1997
IF YOU CHECKED THE BOX IN PART 2 OF THE SUBSTITUTE FORM W-9, YOU MUST
SIGN AND DATE THE FOLLOWING CERTIFICATION:
CERTIFICATION OF PAYEE AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify, under penalties of perjury, that a Taxpayer
Identification Number has not been issued to me, and that I mailed or
delivered an application to receive a Taxpayer Identification Number to
the appropriate Internal Revenue Service Center or Social Security
Administration Office (or I intend to mail or deliver an application in
the near future). I understand that if I do not provide a Taxpayer
Identification Number to the payer, 31% of all payments made to me
pursuant to this Exchange Offer shall be retained until I provide a Tax
Identification Number to the payer and that, if I do not provide my
Taxpayer Identification Number within sixty (60) days, such retained
amounts shall be remitted to the Internal Revenue Service as backup
withholding and 31% of all reportable payments made to me thereafter will
be withheld and remitted to the Internal Revenue service until I provide
a Taxpayer Identification Number.
SIGNATURE_______________________________DATE______________________, 1997
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE
EXCHANGE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR
CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE
FORM W-9 FOR ADDITIONAL DETAILS.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer,
the undersigned hereby tenders to Sun World the principal amount of Old
Notes indicated above. Subject to, and effective upon, the acceptance
for exchange of the Old Notes tendered herewith, the undersigned hereby
exchanges, assigns and transfers to, or upon the order of, Sun World all
rights, title and interest in and to such Old Notes. The undersigned
hereby irrevocably constitutes and appoints the Exchange Agent the true
and lawful agent and attorney-in-fact of the undersigned (with full
knowledge that said Exchange Agent acts as the agent of Sun World in
connection with the Exchange Offer) with respect to the Old Notes to be
assigned, transferred and exchanged with full power of substitution (such
power of attorney being deemed to be an irrevocable power coupled with an
interest). The undersigned represents and warrants that it has full
power and authority to tender, exchange, assign and transfer the Old
Notes tendered hereby and to acquire Exchange Notes issuable upon the
exchange of such tendered Old Notes, and that, when the same are accepted
for exchange, Sun World will acquire good and unencumbered title to the
tendered Old Notes, free and clear of all liens, restrictions, charges
and encumbrances and not subject to any adverse claim or right. The
undersigned also warrants that it will, upon request, execute and deliver
any additional documents deemed by the Exchange Agent to be necessary or
desirable to complete the exchange, assignment and transfer of the Old
Notes tendered hereby or transfer ownership of such Old Notes on the
account books maintained by the book-entry transfer facility.
The Exchange Offer is subject to certain conditions as set forth in
the Prospectus under the caption "The Exchange Offer - Conditions to the
Exchange Offer." The undersigned recognizes that as a result of these
conditions (which may be waived by Sun World, in whole or in part, in the
reasonable judgment of Sun World), as more particularly set forth in the
Prospectus, Sun World may not be required to exchange any of the Old
Notes tendered hereby and, in such event, the Old Notes not exchanged
will be returned to the undersigned at the address shown above.
The undersigned acknowledges that the Exchange Offer is being made
in reliance on an interpretation by the staff of the Securities and
Exchange Commission (the "Commission") that the Exchange Notes issued
pursuant to the Exchange Offer in exchange for the Old Notes may be
offered for resale, resold and otherwise transferred by holders thereof
(other than (i) a broker-dealer who purchased Old Notes directly from Sun
World for resale pursuant to Rule 144A under the Securities Act or (ii) a
person that is an "affiliate" of Sun World within the meaning of Rule 405
under the Securities Act) provided that such Exchange Notes are acquired
in the ordinary course of such holders' business and such holders have no
arrangement with any person to participate in the distribution of such
Exchange Notes. See Morgan Stanley & Co., Inc. (available June 5, 1991)
and Exxon Capital Holdings Corporation (available May 13, 1988); and "The
Exchange Offer - Terms of the Exchange" in the Prospectus.
THE UNDERSIGNED UNDERSTANDS AND AGREES THAT SUN WORLD RESERVES THE
RIGHT NOT TO ACCEPT TENDERED OLD NOTES FROM ANY TENDERING HOLDER IF SUN
WORLD DETERMINES, IN ITS SOLE AND ABSOLUTE DISCRETION, THAT SUCH
ACCEPTANCE COULD RESULT IN A VIOLATION OF APPLICABLE SECURITIES LAWS.
The undersigned, if the undersigned is a beneficial holder,
represents, or, if the undersigned is a broker, dealer, commercial bank,
trust company or other nominee, represents that it has received
representations from the beneficial owners of the Old Notes stating that
(i) the Exchange Notes to be acquired in connection with the Exchange
Offer are being acquired in the ordinary course of business, (ii) the
holder is not participating, does not intend to participate, and has
no arrangement or understanding with any person to participate, in
the distribution of the Exchange Notes, (iii) the holder acknowledges
and agrees that any person participating in the Exchange Offer for
the purpose of distributing the Exchange Notes must comply with the
registration and prospectus delivery requirements of the Securities
Act in connection with a secondary resale transaction of the Exchange
Notes acquired by such person and cannot rely on the position of the
staff of the Commission set forth in no-action letters that are
discussed in the Prospectus under the caption "The Exchange Offer -
Terms of the Exchange," (iv) that if the holder is a broker-dealer
that acquired Old Notes as a result of market-making or other trading
activities, it will deliver a prospectus in connection with any resale
of Exchange Notes acquired in the Exchange Offer, (v) the holder
understands that a secondary resale transaction described in clause
(iii) above should be covered by an effective registration statement
containing the selling security holder information required by Item 507
of Regulation S-K of the Securities Act and (vi) is not an "affiliate,"
as defined under Rule 405 of the Securities Act, of Sun World except as
otherwise disclosed to Sun World in writing.
In addition, if the undersigned is not a broker-dealer, the
undersigned represents that it is not engaged in, and does not intend to
engage in, a distribution of Exchange Notes. If the undersigned is a
broker-dealer that will receive Exchange Notes for its own account in
exchange for Old Notes that were acquired as a result of market-making
activities or other trading activities, it acknowledges that it will
deliver a prospectus in connection with any resale of such Exchange
Notes; however, by so acknowledging and by delivering a prospectus, the
undersigned will not be deemed to admit that it is an "underwriter"
within the meaning of the Securities Act. Broker-dealers who did not so
acquire Old Notes are not eligible to participate in the Exchange Offer.
All authority herein conferred or agreed to be conferred by this
Letter of Transmittal and every obligation of the undersigned hereunder
shall be binding upon the heirs, legal representatives, successors and
assigns, executors, administrators and trustees in bankruptcy of the
undersigned and shall survive the death or incapacity of the undersigned.
Tendered Old Notes may be withdrawn at any time prior to the Expiration
Date in accordance with the terms of the Letter of Transmittal.
The undersigned understands that tenders of the Old Notes pursuant
to any one of the procedures described under "The Exchange Offer -
Tender Procedure" in the Prospectus and in the instructions hereto
will constitute a binding agreement between the undersigned and
Sun World in accordance with the terms and subject to the conditions
of the Exchange Offer.
The undersigned understands that by tendering Old Notes pursuant to one
of the procedures described under "The Exchange Offer - Tender Procedure" in
the Prospectus and the instructions hereto, the tendering holder will be
deemed to have waived the right to receive any payment in respect of
interest on the Old Notes accrued up to the date of issuance of the
Exchange Notes.
The undersigned understands and acknowledges that Sun World reserves
the right in its sole discretion to purchase or make offers for any Old
Notes that remain outstanding subsequent to the Expiration Date in the
open market, in privately negotiated transactions, through subsequent
exchange offers or otherwise. The terms of any such purchases or offers
could differ from the terms of the Exchange Offer.
Certificates for all Exchange Notes delivered in exchange for
tendered Old Notes and any Old Notes delivered herewith but not
exchanged, and registered in the name of the undersigned, shall be
delivered to the undersigned at the address shown below the signature of
the undersigned.
ALL TENDERING HOLDER(S) SIGN HERE
(Complete accompanying Substitute Form W-9)
- -------------------------------------------------------------------------
Signature(s) of Holder(s)
Dated:___________________ Area Code and Telephone Number:___________________
(Must be signed by registered holder(s) exactly as name(s) appear(s) on
certificate(s) of Old Notes. If signature is by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation or
other person acting in a fiduciary or representative capacity, please set
forth the full title of such person.)
See Instruction 3.
Name(s):____________________________________________________________________
___________________________________________________________________________
(Please Type or Print)
Capacity (full title):______________________________________
Address:_________________________________________________________
(Including Zip Code)
Area Code and Telephone No.:______________________________________
Taxpayer Identification or Social Security No.(s):___________________
GUARANTEE OF SIGNATURE(S)
(If Required See Instruction 3)
Authorized Signature:_________________________________________________
Name: _______________________________________________________________
Title:_________________________________________________
Address:_________________________________________________
Name of Firm:_________________________________________________
Area Code and Telephone No.:______________________________________
Dated:_________________________________________________
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. Delivery of this Letter of Transmittal and Certificates.
Certificates for all physically delivered Old Notes or confirmation
of any book-entry transfer to the Exchange Agent's or its agent's account
at a Book-Entry Transfer Facility of Old Notes tendered by book-entry
transfer, as well as a properly completed and duly executed copy of this
Letter of Transmittal or facsimile thereof, and any other documents
required by this Letter of Transmittal, must be received by the Exchange
Agent at any of its addresses set forth herein on or prior to the
Expiration Date.
The method of delivery of the Old Notes, this Letter of Transmittal
and any other required documents is at the election and risk of the
holder. If such delivery is by mail, it is suggested that registered
mail, properly insured, with return receipt requested, be used. It is
recommended that the holders use an overnight or hand delivery service.
In all cases sufficient time should be allowed to permit timely delivery.
Holders whose Old Notes are not immediately available or who cannot
deliver their Old Notes and all other required documents to the Exchange
Agent on or prior to the Expiration Date or comply with book-entry
transfer procedures on a timely basis must tender their Old Notes
pursuant to the guaranteed delivery procedure set forth in the
Prospectus under "The Exchange Offer - Tender Procedure." Pursuant
to such procedure: (i) such tender must be made by or through an Eligible
Institution; (ii) on or prior to the Expiration Date, the Exchange
Agent must have received from such Eligible Institution a letter, telex,
telegram or facsimile transmission (receipt confirmed by telephone and
an original delivered by guaranteed overnight courier) setting forth
the name and address of the tendering holder, the names in which such
Old Notes are registered, and, if possible, the certificate numbers of
the Old Notes to be tendered; and (iii) all tendered Old Notes (or a
confirmation of any book-entry transfer of such Old Notes into the
Exchange Agent's account at a Book-Entry Transfer Facility) as well
as this Letter of Transmittal and all other documents required by this
Letter of Transmittal, must be received by the Exchange Agent within
three business days after the Expiration Date, all as provided in the
Prospectus under the caption "The Exchange Offer - Tender Procedure."
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering holders, by execution of this Letter of
Transmittal (or manually signed facsimile thereof), shall waive any right
to receive notice of the acceptance of the Old Notes for exchange.
2. Partial Tenders; Withdrawals.
Tenders of Old Notes will be accepted only in integral multiples of
$1,000. If less than the entire principal amount of Old Notes evidenced
by a submitted certificate is tendered, the tendering holder should fill
in the principal amount tendered in the box entitled "Principal Amount
Tendered." A newly issued certificate for the principal amount of Old
Notes submitted but not tendered will be sent to such holder as soon as
practicable after the Expiration Date. All Old Notes delivered to the
Exchange Agent will be deemed to have been tendered unless otherwise
clearly indicated.
Tenders of Old Notes pursuant to the Exchange Offer are irrevocable,
except that Old Notes tendered pursuant to the Exchange Offer may be
withdrawn at any time prior to the Expiration Date. To be effective, a
written, telegraphic, telex or facsimile transmission notice of
withdrawal must be received by the Exchange Agent at one of its addresses
set forth in this Letter of Transmittal by 5:00 P.M., New York City time,
on the Expiration Date unless extended by Sun World. Any such notice of
withdrawal, the certificate number(s) of the Old Notes to be withdrawn
(except in the case of book-entry tenders), the principal amount of Old
Notes delivered for exchange or a Book-Entry Confirmation with respect to
such Old Notes and must be signed by the holder in the same manner as the
original signature on the Letter of Transmittal (including any required
signature guarantees). The signature(s) on the notice of withdrawal must
be guaranteed by an Eligible Institution unless such Old Notes have been
tendered (i) by a Registered Holder (which term for purposes of this
document shall include any participant tendering by book-entry transfer)
of Old Notes who has not completed either the box entitled "Special
Exchange Instructions" or the box entitled "Special Delivery
Instructions" on this Letter of Transmittal or (ii) for the account of an
Eligible Institution. If the Old Notes have been tendered pursuant to
the procedure for book-entry tender set forth in the Prospectus under
the caption "The Exchange Offer - Tender Procedure," a notice of
withdrawal is effective immediately upon receipt by the Exchange Agent
of a written, telegraphic or facsimile transmission notice of withdrawal
even if physical release is not yet effected. In addition, such notice
must specify, in the case of Old Notes tendered by delivery of such
Old Notes, the name of the registered holder (if different from that
of the tendering holder) to be credited with the withdrawn Old Notes.
Withdrawals may not be rescinded and any Old Notes withdrawn will
thereafter be deemed not validly tendered for purposes of the Exchange
Offer. However, properly withdrawn Old Notes may be retendered by
following one of the procedures described under "The Exchange Offer -
Tender Procedure" in the Prospectus at any time on or prior to the
applicable Expiration Date.
3. Signature on this Letter of Transmittal; Written Instruments and
Endorsements; Guarantee of Signatures.
If this Letter of Transmittal is signed by the registered holder(s)
of the Old Notes tendered hereby, the signature must correspond with the
name(s) as written on the face of the certificates without alternation,
enlargement or any change whatsoever.
If any of the Old Notes tendered hereby are owned of record by two
or more joint owners, all such owners must sign this Letter of
Transmittal.
If any of the Old Notes tendered hereby are registered in different
names, it will be necessary to complete, sign and submit as many separate
copies of this Letter of Transmittal as there are different registrations
of Old Notes.
When this Letter of Transmittal is signed by the registered holder
or holders (which term, for the purposes described herein, shall include
the Book-Entry Transfer Facility whose name appears on a security listing
as the owner of the Old Notes) of Old Notes specified herein and tendered
hereby, no endorsements of certificates or separate written instruments
of transfer or exchange are required. If, however, Exchange Notes are to
be issued, or any untendered principal amount of Old Notes are to be
reissued to a person other than the registered holder, then endorsements
of any Old Notes transmitted hereby or separate bond powers are required.
If this Letter of Transmittal is signed by a person other than the
registered holder or holders of the Old Notes specified herein, such Old
Notes must be endorsed or accompanied by separate written instruments of
transfer or exchange in form satisfactory to Sun World and duly executed
by the registered holder, in either case signed exactly as the name or
names of the registered holder or holders appear(s) on the Old Notes.
If this Letter of Transmittal or a Notice of Guaranteed Delivery or
any certificates or separate written instruments of transfer or exchange
are signed by trustees, executors, administrators, guardians, attorneys-
in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, such persons should so indicate when signing,
and, unless waived by Sun World, proper evidence satisfactory to Sun
World of their authority so to act must be submitted.
Except as described in this paragraph, signatures on this Letter of
Transmittal or a notice of withdrawal, as the case may be, must be
guaranteed by an Eligible Institution which is a firm which is a member
of a registered national securities exchange or the National Association
of Securities Dealers, Inc., a commercial bank or trust company having an
office or correspondent in the United States or otherwise be an "eligible
guarantor institution" within the meaning of Rule 17Ad-15 under the
Exchange Act (each an "Eligible Institution"). Signatures on this Letter
of Transmittal or a notice of withdrawal, as the case may be, need not be
guaranteed if the Old Notes tendered pursuant hereto are tendered (i) by
a Registered Holder of Old Notes who has not completed either the box
entitled "Special Exchange Instructions" or the box entitled "Special
Delivery Instructions" on this Letter of Transmittal or (ii) for the
account of an Eligible Institution.
Endorsements on certificates or signatures on separate written
instruments of transfer or exchange required by this Instruction 3 must
be guaranteed by an Eligible Institution.
4. Special Issuance and Delivery Instructions.
Tendering holders should indicate in the applicable box the name and
address to which Exchange Notes and/or substitute Old Notes for the
principal amounts not exchanged are to be issued or sent, if different
from the name and address of the person signing this Letter of
Transmittal. In the case of issuance in a different name, the employer
identification or social security number of the person named must also be
indicated. If no such instructions are given, such Old Notes not
exchanged will be returned to the name and address of the person signing
this Letter of Transmittal.
5. Tax Identification Number and Backup Withholding.
Federal income tax law of the United States requires that a holder
of Old Notes whose Old Notes are accepted for exchange provide Sun World
with such holder's correct taxpayer identification number, which, in the
case of a holder who is an individual, is the holder's social security
number, or otherwise establish an exemption from backup withholding. If
Sun World is not provided with the holder's correct taxpayer
identification number, the exchanging holder of Old Notes may be subject
to a penalty imposed by the Internal Revenue Service. In addition,
interest on the Exchange Notes acquired pursuant to the Exchange Offer
may be subject to backup withholding in an amount equal to 31 percent of
any interest payment. If withholding occurs and results in an
overpayment of taxes, a refund may be obtained from the Internal Revenue
Service through the filing of a return.
To prevent backup withholding, each exchanging holder of Old Notes
subject to backup withholding must provide his correct taxpayer
identification number by completing the Substitute Form W-9 provided in
this Letter of Transmittal, certifying that the taxpayer identification
number provided is correct (or that the exchanging holder of Old Notes is
awaiting a taxpayer identification number) and that either (a) the
exchanging holder has not been notified by the Internal Revenue Service
that he is subject to backup withholding as a result of failure to report
all interest or dividends or (b) the Internal Revenue Service has
notified the exchanging holder that he is no longer subject to backup
withholding.
Certain exchanging holders of Old Notes (including, among others,
all corporations and certain foreign individuals) are not subject to
these backup withholding requirements. A foreign individual and other
exempt holders (e.g., corporations) should certify, in accordance with
the enclosed Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9, to such exempt status on the Substitute
Form W-9 provided in this Letter of Transmittal.
6. Transfer Taxes.
Holders tendering pursuant to the Exchange Offer will not be
obligated to pay brokerage commissions or fees or to pay transfer taxes
with respect to their exchange under the Exchange Offer unless the box
entitled "Special Exchange Instructions" in this Letter of Transmittal
has been completed, or unless the securities to be received upon exchange
are to be issued to any person other than the holder of the Old Notes
tendered for exchange. Sun World will pay all other charges or expenses
in connection with the Exchange Offer. If holders tender Old Notes for
exchange and the Exchange Offer is not consummated, such Old Notes will
be returned to the holders at Sun World's expense.
Except as provided in this Instruction 6, it will not be necessary
for transfer tax stamps to be affixed to the Old Notes listed in this
Letter of Transmittal.
7. Waiver of Conditions.
Sun World reserves the right to waive, in whole or in part, in its
reasonable judgment, any of the conditions to the Exchange Offer set
forth in the Prospectus under the caption "The Exchange Offer -
Conditions of the Exchange Offer".
8. Mutilated, Lost, Stolen or Destroyed Old Notes.
Any holder whose Old Notes have been mutilated, lost, stolen or
destroyed, should contact the Exchange Agent at the address indicated
above for further instructions.
9. Validity and Acceptance of Tenders.
All questions as to the validity, form, eligibility (including time
of receipt), acceptance and withdrawal of Old Notes tendered for exchange
will be determined by Sun World in its sole discretion, which
determination shall be final and binding. Sun World reserves the
absolute right to reject any and all Old Notes not properly tendered and
to reject any Old Notes Sun World's acceptance of which might, in the
judgment of Sun World or its counsel, be unlawful. Sun World also
reserves the absolute right to waive any defects or irregularities or
conditions of the Exchange Offer as to particular Old Notes either before
or after the Expiration Date (including the right to waive the
ineligibility of any holder who seeks to tender Old Notes in the Exchange
Offer). The interpretation of the terms and conditions of the Exchange
Offer (including this Letter of Transmittal and the instructions hereto)
by Sun World shall be final and binding on all parties. Unless waived,
any defects or irregularities in connection with tenders of Old Notes for
exchange must be cured within such period of time as Sun World shall
determine. Sun World will use reasonable efforts to give notification of
defects or irregularities with respect to tenders of Old Notes for
exchange but shall not incur any liability for failure to give such
notification. Tenders of the Old Notes will not be deemed to have been
made until such irregularities have been cured or waived.
10. Requests for Assistance or Additional Copies.
Questions relating to the procedure for tendering, as well as
requests for additional copies of the Prospectus and this Letter of
Transmittal, should be directed to the Exchange Agent at the address and
telephone number set forth above.
IMPORTANT: This Letter of Transmittal or a facsimile hereof
(together with certificates of Old Notes or confirmation of book-entry
transfer and all other required documents) or a Notice of Guaranteed
Delivery must be received by the Exchange Agent on or prior to the
Expiration Date.
EXHIBIT 99.3
-------------
FORM OF
NOTICE OF GUARANTEED DELIVERY
for
Tender of all Outstanding
11 1/4% First Mortgage Notes due 2004
in Exchange for New
11 1/4% First Mortgage Notes due 2004
of
SUN WORLD INTERNATIONAL, INC.
Registered holders of outstanding 11 1/4% First Mortgage Notes due
2004 (the "Old Notes") who wish to tender their Notes in exchange for a
like principal amount of new 11 1/4% Notes due 2004 which have been
registered under the Securities Act of 1933, as amended (the "Exchange
Notes"), and whose Old Notes are not immediately available or who cannot
deliver their Old Notes and all other required documents to IBJ Schroder
Bank & Trust Company (the "Exchange Agent") prior to the Expiration Date
(as defined), or if the procedures for delivery by book-entry transfer
cannot be completed on a timely basis, may use this Notice of Guaranteed
Delivery or one substantially equivalent hereto. This Notice of
Guaranteed Delivery may be delivered by hand or sent by facsimile
transmission (receipt confirmed by telephone and an original delivered
by guaranteed overnight delivery) or mail to the Exchange Agent. See
"The Exchange Offer - Tender Procedure" in the Prospectus, dated
_______________, 1997 (the "Prospectus").
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
IBJ SCHRODER BANK & TRUST COMPANY
By Hand/Overnight Express:
IBJ Schroder Bank & Trust
Company
One State Street
New York, New York 10004
Attention: Securities
Processing
Window, Subcellar One (SC-1)
By Mail:
(insured or registered mail
recommended)
IBJ Schroder Bank & Trust
Company
P.O. Box 84
Bowling Green Station
New York, New York 10274-0084
Attention: Reorganization
Operations Department
By Facsimile Transmission:
(212) 858-2611
(For Eligible Institutions Only)
To confirm receipt:
(212) 858-2103
Delivery of this Notice of Guaranteed Delivery to an address other
than as set forth above or transmission of instructions via facsimile
transmission to a number other than as set forth above will not
constitute a valid delivery.
This Notice of Guaranteed Delivery is not to be used to guarantee
signatures. If a signature on a Letter of Transmittal is required to be
guaranteed by an Eligible Institution (as defined in the Prospectus),
such signature guarantee must appear in the applicable space provided on
the Letter of Transmittal for Guarantee of Signatures.
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON _________________________, 1997, UNLESS THE
EXCHANGE OFFER IS EXTENDED.
Ladies and Gentlemen:
The undersigned hereby tenders the principal amount of Old Notes
indicated below, upon the terms and subject to the conditions contained
in the Prospectus and in the related Letter of Transmittal (which,
together with any amendments or supplements thereto, collectively
constitute the "Exchange Offer"), receipt of which is hereby
acknowledged, pursuant to the guaranteed delivery procedures set forth
in the Prospectus under the caption "The Exchange Offer - Tender
Procedure."
DESCRIPTION OF SECURITIES TENDERED
Name(s) and address(es) Principal
of registered holder as Certificate Number(s) Amount of
it apears on the Old of old Notes Tendered Old Notes
Notes Tendered Tendered
(Please Print)
- ---------------------- ---------------------- ----------------
- ---------------------- ---------------------- ----------------
- ---------------------- ---------------------- -----------------
- ---------------------- ---------------------- -----------------
- ---------------------- ---------------------- -----------------
- ---------------------- ---------------------- -----------------
/ / CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO AN ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH
THE BOOK ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution:_____________________________________
___________________________________________________________________
/ / The Depository Trust Company
Account Number: ___________________________________________________
___________________________________________________________________
Transaction Code Number: __________________________________________
___________________________________________________________________
THE FOLLOWING GUARANTEE MUST BE COMPLETED
GUARANTEE OF DELIVERY
(Not to be used for signature guarantee)
The undersigned, an Eligible Institution (as defined in the
Prospectus), hereby (a) represents that the above named person(s)
"own(s)" the Old Notes tendered hereby within the meaning of Rule 14e-4
promulgated under the Securities Exchange Act of 1934, as amended ("Rule
14e-4"), (b) represents that such tender of Old Notes complies with Rule
14e-4, and (c) guarantees to either deliver to the Exchange Agent the
certificates representing all of the Old Notes tendered hereby, in
proper form for transfer, or to deliver such Old Notes pursuant to the
procedure for book-entry transfer into the Exchange Agent's account at
The Depository Trust Company, in either case together with the Letter of
Transmittal (or a facsimile thereof), properly completed and duly
executed, with any required signature guarantees in the case of a
book-entry transfer, and any other required documents, all within three
business days after the date hereof.
Name of Firm:______________________ _____________________________
(Authorized Signature)
Address:___________________________ Title:________________________
___________________________________ Name:__________________________
(Zip Code) (Please type or Print)
Area Code and Telephone Number: Date:__________________________
____________________________________
NOTE: DO NOT SEND OLD NOTES WITH THIS NOTICE OF GUARANTEED
DELIVERY, CERTIFICATES SHOULD BE SENT WITH YOUR LETTER OF TRANSMITTAL.
