As filed with the Securities and Exchange Commission on May 8, 1997
Registration No. 333-19109
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 2
to
Form S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
CADIZ LAND COMPANY, INC.
(Exact name of registrant as specified in its charter)
Delaware 0100 77-0313235
(State or other jurisdiction of (Primary Standard Industrial (IRS Employer
incorporation or organization) Classification Code Number) Identification No.)
10535 Foothill Boulevard, Suite 150
Rancho Cucamonga, California 91730
(909) 980-2738
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Keith Brackpool
10535 Foothill Boulevard, Suite 150
Rancho Cucamonga, California 91730
(909) 980-2738
(Name, address, and telephone number of agent for service)
Copies of communications to:
HOWARD J. UNTERBERGER, ESQ.
J. BRAD WIGGINS, 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
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / X /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. / /
If this Form is a post effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration
statement for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
The Registrant has previously paid registration fees for a total of
8,782,472 shares. As adjusted in this Amendment No. 2, the total number of
shares being registered has been reduced to 8,777,368; therefore, no additional
registration fee is required.
The Registrant hereby amends this Registration Statement on such
date or dates as may be necessary to delay its effective date until the
Registrant 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.
CADIZ LAND COMPANY, INC.
Cross-Reference Sheet Pursuant to Item 501(b) of Regulation S-K Showing
the Location in the Prospectus of the Information Required by Part I of Form
S-1
REQUIRED INFORMATION LOCATION IN PROSPECTUS
-------------------------------------- ---------------------------
1. Forepart of the Registration Statement Facing Page of Registration
and Outside Front Cover Page of Statement; Cross-Reference
Prospectus Sheet; Outside Front Cover
Page of Prospectus
2. Inside Front and Outside Back Cover Inside Front Cover of
Pages of Prospectus Prospectus
3. Summary Information, Risk Factors and Prospectus Summary;
Ratios of Earnings to Fixed Charges Risk Factors
4. Use of Proceeds Inapplicable (as indicated on
Outside Front Cover of
Prospectus and in
Prospectus Summary and
Plan of Distribution)
5. Determination of Offering Price Inapplicable
6. Dilution Inapplicable
7. Selling Security Holders Selling Security Holders
8. Plan of Distribution Outside Front Cover of
Prospectus; Plan of
Distribution
9. Description of Securities to Description of Securities
Be Registered
10. Interests of Named Experts and Legal Matters; Experts
Counsel
11. Information with Respect to the Prospectus Summary; The
Registrant Company; Risk Factors;
Price Range of Common
Stock and Dividend Policy;
Selected Financial Data;
Management's Discussion
and Analysis of Financial
Condition and Results of
Operations; Business;
Management; Certain
Transactions; Principal
Stockholders; Financial
Statements
12. Disclosure of Commission Position on Inapplicable
Indemnification for Securities Act
Liabilities
PROSPECTUS
CADIZ LAND COMPANY, INC.
8,777,368 Shares of Common Stock
(including 677,902 Shares sold in recent private placements;
7,368,249 Shares issued upon conversion
of outstanding shares of Series A Preferred Stock;
366,217 Shares issued in payment of dividends on
outstanding shares of Series A Preferred Stock;
50,000 Shares issuable upon exercise of outstanding Options;
and 315,000 Shares issuable upon exercise of outstanding Warrants)
and 315,000 Warrants for the purchase of Common Stock
This Prospectus relates to the offer by the security holders
named herein under the caption "Selling Security Holders"
(collectively, the "Selling Security Holders") for sale to the public
of the following shares of the $.01 par value common stock (the
"Common Stock") of Cadiz Land Company, Inc. (the "Company" or "Cadiz")
(collectively, the "Shares"): (i) 677,902 outstanding shares of
Common Stock previously sold by the Company and an affiliate of the
Company in unregistered private placements (the "Placement Shares");
(ii) 7,368,249 shares of Common Stock (the "Conversion Shares") which
have been issued by the Company upon the conversion of shares of
the Company's Series A Preferred Stock (the "Series A Preferred");
(iii) 366,217 shares of Common Stock (the "Dividend Shares") which have been
issued by the Company in payment of dividends on the Series A Preferred
Stock; (iv) 50,000 shares of Common Stock (the "Option Shares") which
are issuable by the Company upon the exercise of outstanding options
(the "Options"); and (v) 315,000 shares of Common Stock (the "Warrant
Shares") which are issuable by the Company upon the exercise of
outstanding warrants (the "Warrants"). In addition, this Prospectus
relates to the offer by two of the Selling Security Holders for sale
to the public of the Warrants for the purchase of the Warrant Shares.
The Company will not receive any proceeds from the sale by the
Selling Security Holders of the Shares or the Warrants offered
hereunder. See "Plan of Distribution."
The 315,000 Warrant Shares covered by this Prospectus are
issuable upon exercise of outstanding Warrants held by two of the
Company's institutional lenders. The 240,000 Warrants of one holder
are exercisable until December 31, 2000 at an exercise price of $.05
per Warrant Share. The 75,000 Warrants of the other holder are exercisable
for five years, beginning on April 30, 1997, at an exercise price equal
to the average daily closing price of the Company's Common Stock over
a ten trading day period ending on April 29, 1997. See "Description of
Securities."
The Common Stock is quoted in the National Market System of the
National Association of Securities Dealers Automated Quotation system
("Nasdaq") under the symbol "CLCI." The closing sale price of the
Common Stock reported by Nasdaq on May 6, 1997, was $5.00. See
"Price Range of Common Stock and Dividend Policy."
The Selling Security Holders have advised the Company that they
may sell, directly or through brokers, all or a portion of the
securities offered hereby in negotiated transactions or in one or more
transactions in the market at the price prevailing at the time of
sale. In connection with such sales, the Selling Security Holders and
any participating broker may be deemed to be "underwriters" of the
Shares within the meaning of the Act. It is anticipated that usual
and customary brokerage fees will be paid by Selling Security Holders
in all open market transactions. The Company will pay substantially
all other expenses of the offering. See "Plan of Distribution."
The Company has filed a registration statement under the
Securities Act of 1933, as amended (the "Act"), covering the offer and
sale of the Shares by the Selling Security Holders. This registration
is in satisfaction of the terms of agreements by the Company with
certain Selling Security Holders to register their Shares and Warrants
for resale under the Act.
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES
A HIGH DEGREE OF RISK. SEE "RISK FACTORS."
______________________
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.
The date of this Prospectus is ___________, 1997
No dealer, salesman or other person has been authorized to give
any information or make any representations, other than those
contained in this Prospectus, in connection with the offering hereby,
and, if given or made, such information and representations must not
be relied upon as having been authorized by the Company or the Selling
Security Holders. This Prospectus does not constitute an offer to
sell, or a solicitation of an offer to buy, any securities to any
person in any State or other jurisdiction in which such offer or
solicitation is unlawful. Neither the delivery of this Prospectus nor
any sale made hereunder shall, under any circumstances, create any
implication that there has been no change in the affairs of the
Company or the facts herein set forth since the date hereof.
This Prospectus includes "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities and Exchange Act of 1934, as amended. 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
industry prospects and the Company's financial position are forward-
looking statements. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable, it can give
no assurance that such expectations will prove to have been correct.
Important factors that could cause actual results to differ materially
from the Company's expectations ("Cautionary Statements") are disclosed in
this 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 the Company, the Selling Security Holders or persons
acting on their behalf are expressly qualified in their entirety by the
Cautionary Statements.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission
(the "Commission") a registration statement (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Act"),
with respect to the securities offered by this Prospectus. This
Prospectus does not contain all of the information set forth in the
Registration Statement. For further information with respect to the
Company and the securities offered hereby, reference is made to the
Registration Statement and to the schedules and exhibits filed
therewith, which may be inspected without charge at the principal
office of the Commission, 450 5th Street, N.W., Washington, D.C.
20549, and copies of the material contained therein may be obtained
from the Commission upon payment of applicable copying charges.
Statements contained in this Prospectus as to the contents of any
contract or other document referred to herein are not necessarily
complete, and in each instance reference is made to the copy of such
contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference.
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended, and in accordance
therewith files reports and other information with the Commission.
Such reports and other information filed by the Company can be
inspected and copied at the public reference facilities maintained by
the Commission at Room 1024, 450 5th Street, N.W., Washington, D.C.
20549, and at the Commission's regional offices at 7 World Trade
Center, Suite 1300, New York, New York 10048, and Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of
such material can be obtained from the Public Reference Section of the
Commission at 450 5th Street, N.W., Washington, D.C. 20549, at
prescribed rates. The Commission also maintains a Web site
(http://www.sec.gov) that contains reports, proxy and information
statements and other information regarding the Company and other
registrants that file electronically with the Commission.
TABLE OF CONTENTS
Page
----
Prospectus Summary . . . . . . . . . . . . . . . . . . . . . . 5
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . 9
Price Range of Common Stock and Dividend Policy. . . . . . . .14
Selected Financial Data. . . . . . . . . . . . . . . . . . . .15
Management's Discussion and Analysis
of Financial Condition and Results of Operations . . . . . . .17
Business . . . . . . . . . . . . . . . . . . . . . . . . . . .29
Principal Stockholders. . . . . . . . . . . . . . . . . . . . 40
Management . . . . . . . . . . . . . . . . . . . . . . . . . .42
Executive Compensation. . . . . . . . . . . . . . . . . . . . 44
Certain Relationships and Related Transactions . . . . . . . .48
Selling Security Holders . . . . . . . . . . . . . . . . . . .49
Plan of Distribution . . . . . . . . . . . . . . . . . . . . .52
Description of Securities. . . . . . . . . . . . . . . . . . .52
Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . .55
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . .55
Index to Financial Statements. . . . . . . . . . . . . . . . F-1
PROSPECTUS SUMMARY
The following summary information is qualified in its entirety by
the detailed information and consolidated financial statements,
including the notes thereto, appearing elsewhere in this Prospectus
and, accordingly, should be read in conjunction with that information
and those financial statements and notes.
THE COMPANY
Cadiz Land Company, Inc. (the "Company" or "Cadiz") was formed in
1983 under the name AridTech, Inc. On May 9, 1988, the name of the
Company was changed to Pacific Agricultural Holdings, Inc., and in May
1992 the Company's shareholders approved the reincorporation of the
Company into Delaware under its current name.
The long-term strategy of the Company is to acquire and develop
water-related land and agricultural assets. The Company has created an
integrated and complementary portfolio of landholdings, water resources,
and agricultural operations 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.
In 1996, the Company significantly enhanced this portfolio through
its acquisition of Sun World International, Inc. ("Sun World"). The Sun
World acquisition has made the Company one of the largest fully integrated
agricultural companies in California. The Sun World acquisition added to
the Company's portfolio more than 17,000 acres of prime agricultural land,
packing facilities, marketing expertise, proprietary agricultural products
and the highly regarded Sun World brand name.
Sun World ships approximately 75 varieties of fresh produce to all
50 states in the United States and exports fresh fruits and vegetables to
over 30 foreign countries. Produce grown or distributed by Sun World
reaches more than 600 accounts including supermarket retailers, food
service entities, warehouse clubs and international trading companies
throughout North America, Europe and Pacific Rim countries. For the
twelve months ended December 31, 1996, Sun World recorded revenues of
$100.4 million.
The acquisition of Sun World also added valuable water rights to the
Company's existing water resource development operations. In addition to
its Sun World properties, the Company holds more than 39,000 acres of land
in eastern San Bernardino County. These landholdings are underlain by
excellent groundwater resources and 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 transfer of surplus water to public agencies which require
supplemental sources of water.
The Company continually seeks to develop and manage its land, water
and agricultural resources for their highest and best use. Agricultural
development will enable the Company to maximize the value of its landholdings
while generating cash flow. The Company will continue to pursue opportunities
for use of its water resources, both for internal operations and to relieve
water shortages in other portions of Southern California.
The Company's principal offices are located at 10535 Foothill
Boulevard, Suite 150, Rancho Cucamonga, California 91730, and its
telephone number is (909) 980-2738.
THE OFFERING
Total Shares Offered by the
Selling Security Holders . . . . . . . . 8,777,368 Shares
Placement Shares. . . . . . . . . . . 677,902 Shares
Conversion Shares . . . . . . . . . . 7,368,249 Shares
Dividend Shares . . . . . . . . . . . 366,217 Shares
Option Shares . . . . . . . . . . . 50,000 Shares
Warrant Shares. . . . . . . . . . . . 315,000 Shares
Total Warrants Offered by the
Selling Security Holders . . . . . . . . 315,000 Warrants
Common Stock Outstanding Prior
to this Offering(1). . . . . . . . . . . 31,928,616 shares
Common Stock to Be Outstanding
After Completion of this Offering(2) . . 32,293,616 shares
Risk Factors . . . . . . . . . . . . . This offering is speculative and
involves a high degree of risk.
See "Risk Factors."
Use of Proceeds. . . . . . . . . . . . . The Company will not receive any
proceeds from the sale of Shares
or the sale of Warrants pursuant
to this Prospectus.
Nasdaq National Market System Symbol CLCI
____________________
(1) As of May 7, 1997.
Assumes the exercise of all outstanding Options and Warrants.
SUMMARY FINANCIAL DATA
The following summary financial data insofar as it relates to the nine
months ended December 31, 1996 and to each of the years ended March 31, 1996,
1995, 1994 and 1993 has been derived from financial statements audited by
Price Waterhouse LLP, independent accountants. The information that follows
should be read in conjunction with the audited consolidated financial
statements of the Company and notes thereto for the nine months ended
December 31, 1996 and for the two years ended March 31, 1996 included
elsewhere herein. See also "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the audited consolidated
financial statements included herein for Sun World, which was aquired
by the Company on September 13, 1996.
CADIZ LAND COMPANY, INC.
SUMMARY FINANCIAL DATA
($ in thousands, except for per share data)
Nine Months Ended
December 31, Year Ended March 31,
1996(1) 1996 1995 1994 1993
---------------- ---------------------------------------
Statement of
Operations Data:
Revenues $ 23,780 $ 1,441 $ 543 $ 190 $ -0-
Loss from
continuing
operations
before
extraordinary
items (5,997) (8,487) (4,706) (4,239) (4,087)
Gain
from
disposal of
discontinued
segment(2) -0- -0- -0- 145 -0-
Extraordinary
items -0- -0- 115 343 -0-
-------- -------- --------- --------- --------
Net loss (5,997) (8,487) (4,591) (3,751) (4,087)
Less:
Preferred
stock
dividends (674) -0- -0- -0- -0-
Imputed
dividend on
preferred
stock (2,451) -0- -0- -0- -0-
--------- --------- -------- -------- ---------
Net loss
applicable to
common stock $ (9,122) $ (8,487) $ (4,591) $ (3,751) $ (4,087)
========= ========= ========= ========= =========
Per Share:
Net loss from
continuing
operations
before
extraordinary
items $ (0.44) $ (0.48) $ (0.29) $ (0.33) $ (0.47)
Net income
from
operations
of discontinued
segment
and disposal of
discontinued
segment(2) -0- -0- -0- 0.01 -0-
Extraordinary
items -0- -0- 0.01 0.03 -0-
---------- -------- -------- -------- --------
Net loss $ (0.44) $ (0.48) $ (0.28) $ (0.29) $ (0.47)
========== ======== ========= ========= =========
Weighted average
common shares and
equivalents 20,500 17,700 16,500 12,800 8,700
========= ======== ======== ======== =========
December 31, As of March 31,
-------------------------------------------
1996 1996 1995 1994 1993
----------------- -------------------------------------------
Balance Sheet
Data:
Total assets $ 230,790 $ 38,663 $ 34,888 $ 34,058 $ 27,635
Long-term debt $ 149,111 $ 68 $ 16,827 $ 13,833 $ 15,979
Redeemable
preferred stock $ 27,431 $ -0- $ -0- $ -0- $ -0-
Preferred stock,
common stock
and
additional
paid-in-
capital $ 88,808 $ 73,149 $ 62,857 $ 60,044 $ 45,199
Accumulated
deficit $ (61,067) $ (54,396) $ (45,909) $ (41,318) $(37,567)
_________________
(1) Subsequent to the Company's September 13, 1996 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.
Additionally, as a result of the Sun World acquisition, the operations
for the nine months ended December 31, 1996 include the results of
operations of Sun World for the period September 14, 1996 through
December 31, 1996.
(2) In December 1990, the Company committed to a plan to eliminate all
agribusiness operations acquired as part of its 1988 merger with Pacific
Agricultural Services, Inc.
RISK FACTORS
The securities offered hereby involve a high degree of risk. Prior
to making an investment, prospective investors should carefully consider
the following risks affecting the Company and this offering. This
Prospectus, and particularly the Management's Discussion and Analysis
section, contains trend analysis and other forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. Actual results could differ materially from those projected in
the forward-looking statements throughout this document as a result of the
factors described below.
HISTORICAL OPERATING LOSSES AND ACCUMULATED DEFICITS/UNCERTAINTY OF EFFECT
- --------------------------------------------------------------------------
OF SUN WORLD ACQUISITION
- ------------------------
The Company has a history of operating losses (approximately $8.5
million for the fiscal year ended March 31, 1996 and approximately $6.0
million for the nine months ended December 31, 1996) and accumulated
deficits (approximately $54.4 million at March 31, 1996 and approximately
$61.1 million at December 31, 1996). 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 the Company, such prior
operating history of the Company is not indicative of future trends; rather,
the Company's consolidated results of operations will be largely dependent
upon the results of operations of its Sun World subsidiary. The Company
cannot predict with any degree of accuracy what effect its acquisition of
Sun World will have on its business operations in the next several years.
See also "Risks Inherent in Agricultural Operations," below.
RISKS INHERENT IN AGRICULTURAL OPERATIONS
- ------------------------------------------
The Company is subject to risks associated with its agricultural
operations. Numerous factors can affect the price, yield, and marketability
of the crops grown on the Company'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 the Company's control that
could, alone or in combination, materially adversely affect the Company'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. The Company'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 the Company's agricultural operations will be
commercially profitable.
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-Significant Leverage and Working
Capital Requirements."
In connection with the water resource development activities of
the Company, revenues are not expected to be seasonal in nature. The
Company 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.
DEVELOPMENT STAGE RISKS OF PROPOSED COMMERCIAL PRODUCTION AND TRANSFER
OF WATER
- ------------------------------------------------------------------
The Company 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
the Company's 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, the Company may also encounter unforeseen technical
difficulties which could result in construction delays and cost increases
with respect to the Company's water transfer projects. The Company 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 the
Company will be able to deliver or store under such arrangements, nor as
to the price which the Company will be able to obtain. Furthermore, the
Company 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 the Company's proposed operations in this area.
POTENTIAL ADVERSE EFFECT OF RAIL-CYCLE PROJECT ON THE COMPANY
- -------------------------------------------------------------
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 the Company's
Cadiz properties (the "Rail-Cycle Project"). The Company
contends that the Rail-Cycle Project, as currently designed, poses
environmental risks to both the Company's agricultural operations at
Cadiz and to the groundwater basin underlying the Cadiz property. The
Company 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 the
Company's 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, must be approved by a majority vote
in a general election. The Company believes that the Rail-Cycle
Project, if constructed and operated as proposed, will have a materially
adverse impact upon the Company's business. See "Business - Legal
Proceedings." However, management is unable to predict the magnitude of
such impact, if any, at this time.
SIGNIFICANT LEVERAGE AND WORKING CAPITAL REQUIREMENTS
- -----------------------------------------------------
As a result of the Sun World acquisition, the consolidated Company's
capital structure is significantly leveraged. On April 16, 1997, the
Company 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
million of 11-1/4% First Mortgage Notes due April 15, 2004 (the "Sun World
Notes")) and $30 million of borrowing availability under a revolving credit
facility (the "Revolving Credit Facility"). The Cadiz indebtedness is
secured by substantially all of the Company's non-Sun World assets. The Sun
World Notes are secured by a first lien on substantially all of the assets
of Sun World and its subsidiaries, other than the 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 stock
of Sun World held by the Company. Sun World will depend on the Revolving
Credit Facility to meet its significant seasonal working capital needs in 1997.
Management anticipates that the credit available under the Revolving Credit
Facility will be sufficient to meet Sun World's current seasonal requirements,
although no assurances can be given. See "Seasonality," above, and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources."
The degree to which the Company's capital structure is leveraged could
impair both the Company's 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 the Company 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 the Company and Sun World. If Sun World does not generate
sufficient cash flow to service its debt, or if Sun World or Cadiz fails to
comply with covenants in the indenture under which the Sun World Notes
were issued (the "Sun World Indenture"), they would face a default on
their obligations. Such a default could result in the loss of all of the
Company's investment in Sun World.
LIMITATIONS ON ACCESS TO SUN WORLD CASH FLOW AND DIVIDENDS
- ----------------------------------------------------------
The Company's ability to receive distributions from Sun World's cash
flow is restricted by a series of covenants in the Sun World Indenture that
allow for the payment of dividends subject to meeting certain tests and
ratios.
ENVIRONMENTAL MATTERS
- ---------------------
In the normal course of its agricultural operations, the Company handles,
stores, transports and dispenses products identified as hazardous materials
which could subject the Company to liability for the cleanup of such
hazardous substances or wastes or may adversely affect the value of the
Company's properties. Regulatory agencies periodically conduct inspections
and, currently, there are no pending claims with respect to hazardous
materials.
REGULATION
- -----------
Certain areas of the Company's operations are subject to varying
degrees of federal, state and local laws and regulations. The Company'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.
Environmental concerns are inherent in most major agricultural operations,
including those conducted by the Company, and there can be no assurances
that the cost of compliance with environmental laws and regulations in the
future will not be material.
The Company's food operations are also subject to regulations enforced
by, among others, the U.S. Food and Drug Adminstration 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.
In addition, there can be no assurances as to the effect of any environmental
regulations which may be adopted in the future.
REGULATORY APPROVALS
- --------------------
As the Company proceeds with the development of its properties,
including related infrastructure, the Company 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 the Company will receive desired approvals for future
development plans.
COMPETITION
- -------------
The agricultural business is highly competitive. The Company'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.
The Company faces competition for the acquisition, development and
sale of its properties from a number of competitors, some of which have
significantly greater resources than the Company. The Company 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, the Company believes that price
and reliability of delivery are the principal competitive factors
affecting transfers of water in California. In this regard, the ability
of the Company 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 - Description of Business - Competition."
AUTHORIZATION OF "BLANK CHECK" PREFERRED STOCK
- -----------------------------------------------
The Company's Certificate of Incorporation, as amended, authorizes
the issuance of up to 100,000 shares of preferred stock with such
designations, rights and preferences as may be determined from time to
time by the Company's Board of Directors. Accordingly, the Board of
Directors is empowered, without stockholder approval, to issue preferred
stock in one or more series, and to fix for any series the dividend
rights, dissolution or liquidation preferences, redemption prices,
conversion rights, voting rights, and other rights, preferences or
privileges for such preferred stock which could adversely affect the
voting power or other rights of the holders of the Common Stock. To
date the Board of Directors has designated three series of Preferred
Stock for issuance, including (i) up to 60,000 shares of
Series A Preferred, of which 27,631 shares have been issued and
no shares currently remain outstanding; (ii) up to 1,000 shares
of 6% Convertible Series B Preferred Stock (the "Series B Preferred"), of
which 1,000 shares have been issued and 90 shares currently remain
outstanding; and (iii) up to 365 shares of 6% Convertible Series C
Preferred Stock (the "Series C Preferred"), of which 300 shares have been
issued and no shares currently remain outstanding. See "Description of
Securities." The Board of Directors has no present plans or arrangements
for the issuance of additional shares of Preferred Stock, and the Company's
ability to issue additional Preferred Stock is restricted by covenants in
the Sun World Indenture. However, there can be no assurance that the
Company will not issue such shares in the future. Such shares could, under
certain circumstances, be issued as a method of discouraging, delaying or
preventing a change in control of the Company. The issuance of such shares
could prevent holders of the Company's Common Stock from receiving a
premium for their shares from a potential third-party acquiror.
DILUTION UPON CONVERSION AND EXERCISE OF SECURITIES
- ----------------------------------------------------
The issuance of Shares upon conversion and exercise of outstanding
Preferred Stock and Warrants may have certain dilutive effects,
including dilution of the Company's earnings per share.
MARKET RISKS FROM SUBSTANTIAL INCREASE IN NUMBER OF SHARES OF COMMON STOCK
ELIGIBLE FOR RESALE
- --------------------------------------------------------------------------
The registration for resale hereunder of 677,902 Placement Shares,
7,368,249 Conversion Shares, 366,217 Dividend Shares, 50,000 Options Shares
and 315,000 Warrant Shares, for an aggregate total of 8,777,368 Shares, will
significantly increase the number of outstanding shares of Common Stock
of the Company eligible for resale. See "Description of Securities." The
sale, or availability for sale, of these Shares could cause downward
pressure on, and decreases in, the market price of the Company's Common Stock,
particulary in the event that a large number of Shares were sold in the
public market over a short period of time.
NO ASSURANCE OF DIVIDENDS ON COMMON STOCK
- ----------------------------------------------
To date, the Company has never paid a cash dividend on Common
Stock, and the Company's ability to pay such dividends is restricted by a
series of covenants in the Sun World Indenture that allow for the payment
of dividends subject to meeting certain tests and ratios. The Company
retained an investment banking firm to, among other things, advise the
Company as to the most tax-efficient means of distributing revenues from
the Company's operations to its shareholders. See "Price Range of Common
Stock and Dividend Policy."
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Company's Common Stock is traded on the Nasdaq National Market
under the symbol "CLCI." The following table reflects actual sales
transactions. The high and low price range of the Common Stock for each
of the dates indicated has been provided by Nasdaq.
High Low
Quarter Ended Sales Price Sales Price
-------------- -------------
1995:
March 31 $5.438 $4.125
June 30 $4.875 $4.000
September 30 $5.500 $3.688
December 31 $6.250 $4.063
1996:
March 31 $6.375 $5.250
June 30 $6.500 $5.219
September 30 $6.000 $3.875
December 31 $5.625 $3.875
1997:
March 31 $6.063 $4.838
On May 6, 1997, the high, low and last sales prices for the
Company's Common Stock, as reported by Nasdaq, were $5.00, $4.875 and
$5.00, respectively.
The Company also has an authorized class of 100,000 shares of
preferred stock ("Preferred Stock"). To date the Board of Directors has
designated three series of Preferred Stock for issuance, including (i)
up to 60,000 shares of Series A Preferred, of which 27,631 shares have
been issued and no shares currently remain outstanding; (ii) up to 1,000
shares of Series B Preferred, of which 1,000 shares have been issued and
90 shares currently remain outstanding; and (iii) up to 365 shares of
Series C Preferred, of which 300 shares have been issued and no shares
currently remain outstanding. See "Description of Securities." The Board
of Directors has no present plans or arrangements for the issuance of
additional shares of Preferred Stock. The Sun World Indenture includes
covenants restricting the Company's ability to issue additional shares
of Preferred Stock. See "Risk Factors - Authorization of 'Blank Check'
Preferred Stock."
The estimated number of beneficial owners of the Company's Common
Stock is approximately 1,500, and the number of stockholders of record
on May 6, 1997, was 252.
To date, the Company has never paid a cash dividend on Common
Stock, and currently the Company's ability to pay such dividends is
restricted by a series of covenants in the Sun World Indenture that allow
for the payment of dividends subject to meeting certain tests and ratios.
The Company retained an investment banking firm to, among other things,
advise the Company as to the most tax-efficient means of distributing
revenues from the Company's operations. The amount and frequency of any
such dividends would be subject to the discretion of the Board of Directors.
SELECTED FINANCIAL DATA
The following selected financial data, insofar as it relates to
the nine months ended December 31, 1996 and each of the years ended March 31,
1996, 1995, 1994, and 1993 has been derived from financial statements audited
by Price Waterhouse LLP, independent accountants. The information that
follows should be read in conjunction with the audited consolidated financial
statements of the Company and notes thereto for the nine months ended
December 31, 1996 and for the two years ended March 31, 1996 included
elsewhere herein. See also "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the audited consolidated
financial statements included herein for Sun World, which was acquired by the
Company on September 13, 1996.
CADIZ LAND COMPANY, INC.
SELECTED FINANCIAL DATA
($ in thousands, except for per share data)
Nine Months Ended
December 31, Year Ended March 31,
1996(1) 1996 1995 1994 1993
------ ------------------------------------------
Statement of
Operations Data:
Revenues $ 23,780 $ 1,441 $ 543 $ 190 $ -0-
Loss from
continuing
operations
before
extraordinary
items (5,997) (8,487) (4,706) (4,239) (4,087)
Gain
from
disposal of
discontinued
segment(2) -0- -0- -0- 145 -0-
Extraordinary
items -0- -0- 115 343 -0-
------- -------- ------- ------- -------
Net loss (5,997) (8,487) (4,591) (3,751) (4,087)
Less: Preferred
stock
dividends (674) -0- -0- -0- -0-
Imputed
dividend on
preferred
stock (2,451) -0- -0- -0- -0-
----------- --------- -------- --------- ---------
Net loss
applicable to
common stock $ (9,122) $ (8,487) $ (4,591) $ (3,751) $ (4,087)
========== ========= ========= ========= =========
Per Share:
Net loss from
continuing
operations
before
extraordinary
items $ (0.44) $ (0.48) $ (0.29) $ (0.33) $ (0.47)
Net income
from
operations
of discontinued
segment
and disposal of
discontinued
segment(2) -0- -0- -0- 0.01 -0-
Extraordinary
items -0- -0- 0.01 0.03 -0-
--------- ---------- --------- -------- -------
Net loss $ (0.44) $ (0.48) $ (0.28) $ (0.29) $ (0.47)
========= ========= ========= ======== ========
Weighted average
common shares and
equivalents 20,500 17,700 16,500 12,800 8,700
======== ========= ========= ======= =======
December 31, As of March 31,
---------------------------------------
1996 1996 1995 1994 1993
------------ --------------------------------------------
Balance Sheet
Data:
Total assets $ 230,790 $ 38,663 $ 34,888 $ 34,058 $ 27,635
Long-term debt $ 149,111 $ 68 $ 16,827 $ 13,833 $ 15,979
Redeemable
preferred
stock $ 27,431 $ -0- $ -0- $ -0- $ -0-
Preferred
stock,
common stock
and
additional
paid-in-
capital $ 88,808 $ 73,149 $ 62,857 $ 60,044 $ 45,199
Accumulated
deficit $ (61,067) $ (54,396) $ (45,909) $ (41,318) $(37,567)
_________________
(1) Subsequent to the Company's September 13, 1996 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. Additionally, as a
result of the Sun World acquisition, the operations for the nine months ended
December 31, 1996 include the results of operations of Sun World for the
period September 14, 1996 through December 31, 1996.
(2) In December 1990, the Company committed to a plan to eliminate all agri-
business operations acquired as part of its 1988 merger with Pacific
Agricultural Services, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
On September 13, 1996, the Company acquired all of the
outstanding capital stock of Sun World (the "Sun World
Acquisition"). The Sun World Acquisition was accounted for
using the purchase method of accounting. The Company's
consolidated financial statements include Sun World from the
date of acquisition. In addition, the Company has 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. The financial
statements set forth herein for the nine months ending December
31, 1996 are the first year end financial statements of the
Company to reflect the Sun World Acquisition. The operations of
Sun World have, and will continue to have, a significant impact
upon the Company's financial statements.
Following the Sun World Acquisition, 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 the Company'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
world wide patents and trademarks; and (v) reducing leverage to
lower financial risk and improve operating flexibility.
As a result of this strategic plan, Sun World has: (i)
entered into new agreements to market fruit and vegetables from
Chile and Mexico; (ii) added equipment to its San Joaquin Valley
packing facility to pack citrus; (iii) relocated its
administrative offices to existing space at its San Joaquin
Valley packing facility; (iv) entered into licensing agreements
for certain of Sun World's proprietary products in Spain, Chile
and South Africa; and (v) completed asset sales of more than
$12.4 million of fallow land, with the proceeds applied to
reduce Sun World's leverage.
Prior to the Sun World Acquisition, Cadiz 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.
RESULTS OF OPERATIONS
The following is management's discussion of certain factors
which have affected the Company's financial condition and
results of operations for the nine months ended December 31,
1996 and the fiscal years ended March 31, 1996 and 1995 as
compared to prior periods.
The Company's results of operations for the nine months
ended December 31, 1996 include the results of operations of Sun
World for the period September 14, 1996 through December 31,
1996. The results of operations of Sun World prior to September
14, 1996 have not been consolidated with those of the Company.
As a result of the foregoing, and as a result of the change of
the Company's fiscal year end from March 31 to December 31,
direct comparisons of the Company's consolidated results of
operations for 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 following discussion contains trend analysis and other
forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Actual results
could differ materially from those projected in the forward-looking
statements throughout this document.
NINE MONTHS ENDED DECEMBER 31, 1996 COMPARED TO FISCAL YEAR
ENDED MARCH 31, 1996
During the nine months ended December 31, 1996, the Company
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 the Company, this is not
indicative of the results of operations should a full fiscal
year of activity be included.
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 profits from farming operations vary 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 will 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, marketing 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.
REVENUES. During the nine months ended December 31, 1996,
the Company 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
the Company's 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 the
Company, $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 the Company 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 the Company's landholdings. These costs include
the operating costs associated with the Company'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 the
Company's 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 the Company's
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. The Company 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 "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 totalled $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 the Company 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
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 totalled $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 totalled $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 totalled $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.
Pursuant to its business strategy, Cadiz has utilized its working
capital primarily for development purposes; that is, for purposes
designed to increase the long-term value of its properties. As Cadiz
has not received significant revenues from its development operations
to date, Cadiz has been required to obtain financing to bridge the gap
between the time development expenses are incurred and the time that a
revenue stream will commence. Accordingly, Cadiz has looked to outside
funding sources to address its liquidity and working capital needs.
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. However, following the
completion of an offering by Sun World of $115.0 million in secured notes
as further discussed below, the Company believes it will be able to
meet its working capital needs without looking to outside funding
sources, although no assurances can be made. See "Current Financing
Arrangements" and "Equity Placements," below.
On September 13, 1996, Cadiz acquired all of the stock of
Sun World. The net purchase price of approximately $178
million consisted of the following: (i) assumption of $156
million of restructured debt with Sun World's existing lenders
(of which a principal reduction in the amount of $5.5 million
was made by Cadiz concurrent with the acquisition); (ii) $12
million to pay claims of Sun World's unsecured creditors as
determined during the reorganization process; (iii) $7 million
in cash and stock delivered both to previous holders of the
stock of Sun World upon transfer of stock to Cadiz and to
existing unsecured creditors in satisfaction of claims; and
(iv) $3 million of acquisition fees and costs.
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 Cadiz' existing indebtedness to
Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A.("Rabobank")
(referred to hereinafter as the "Debt Restructuring").
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 August with a peak need in June. Sun World harvests
and sells the majority of its crops during the period from May
through September, 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 the Debt Restructuring, 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 Sun
World Notes to fund debt repayments. Therefore, Sun World will
depend upon the Revolving Credit Facility to meet its seasonal
working capital needs in 1997. See "Risk Factors - Seasonality"
and "--Significant Leverage and Working Capital Requirements."
After giving effect to the issuance of the Sun World
Notes and the application of the net proceeds therefrom,
Sun World has $120.0 million of indebtedness outstanding
and $30.0 million of borrowing availability under the
Revolving Credit Facility. Cadiz has approximately $10.0
million of indebtedness outstanding. See "Cadiz
Obligations," below. Management believes that the terms of
the Company's debt facilities following the issuance of the Sun
World Notes are more favorable to the Company than the terms of
the retired debt facilities. See "Outlook," below.
CURRENT FINANCING ARRANGEMENTS.
SUN WORLD OBLIGATIONS
The Sun World Notes, which were issued in the principal amount
of $115 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 guarantee
of Cadiz and the pledge by Cadiz of all of the stock of Sun World.
See "Risk Factors--Significant Leverage and Working Capital Requirements"
and "- Limitations on Access to Sun World Cash Flow and Dividends."
Sun World's $30 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 Sun World's election, with an additional .50%
payable for advances exceeding 30% of eligible inventory or $9 million
of eligible inventory. The Revolving Credit Facility is secured by
growing crops, crop inventories and accounts receivable and proceeds
thereof. Rabobank acted as lead agent for, and also participated in,
the Revolving Credit Facility. See "Risk Factors--Significant
Leverage and Working Capital Requirements."
CADIZ OBLIGATIONS
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 the Company'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 the Company continues to aggressively pursue its
business strategy, additional financing specifically in
connection with the Company's 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 the Company's
responsibility. Should the Company 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, the Company will be required to obtain long-term
project financing. Based upon the results of analyses
performed by an investment banking firm retained by the
Company, management believes that several alternative
long-term financing arrangements are available to the Company
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; (ii) the issuance by Cadiz of $7.6 million of
newly authorized Series B Preferred; (iii) the issuance by
Cadiz of $2.6 million of newly authorized Series C Preferred; and
(iv) $1.0 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 $35.0 million was applied to cash
disbursements required at closing under the Sun World Plan of
Reorganization, including the $15.0 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 Sun
World bankruptcy case, as originally approved, the total cash
requirements of the Company in order to close the Sun World
Acquisition would have been approximately $39.0 million, with
$15.0 million of this amount to be deposited by the Company at
closing into the trusteed unsecured claims reserve account.
However, in order to protect against stockholder dilution,
shortly before completion of the Sun World Acquisition the
Company was able to successfully negotiate a reduction in this
required initial cash deposit to $11.0 million, thereby
effectively reducing cash requirements at closing to $35.0
million. As a condition to this reduction in the amount of
the initial deposit, the Company 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, the Company 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 the Company was less
than the additional amount which the Company would otherwise
have needed to issue prior to the Sun World 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
the Company of an Amendment to its Certificate of
Incorporation ("Amendment") increasing the Company's
authorized Common Stock from 24 million to 45 million shares,
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 $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 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 shall pay
to holders one full year's worth of dividends (less the amount
of any dividends theretofore paid). The Company 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 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.
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. 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. 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.
WORKING CAPITAL RESOURCES. As noted above, subsequent to
the Sun World Acquisition, the Company adopted a classified
balance sheet thereby requiring the distinction between
current assets and long-term assets and current liabilities
and long-term liabilities. As a result, on a consolidated
basis, the Company had, at December 31, 1996, working capital
of $44.8 million, cash of $33.3 and a current ratio of
approximately 3.5 to 1.0.
The following table summarizes the Company's cash
position for the periods indicated (amounts in thousands):
Nine
months Year
ended ended
December 31, March 31,
1996 1996
------ ------
Net cash used for continuing
operating activities $ (66) $ (5,736)
Net cash provided by (used for)
investing activities 6,656 (2,357)
Net cash provided by
financing activities 21,564 10,792
--------- ---------
Net increase in cash 28,154 2,699
Cash and cash equivalents,
beginning of period 5,153 2,454
--------- ---------
Cash and cash equivalents,
end of period $ 33,307 $ 5,153
========= =========
CASH USED FOR OPERATING ACTIVITIES. Cash used for
operating activities totalled $66,000 for the nine months
ended December 31, 1996 as compared to cash used for
continuing operating activities of $5.7 million for the fiscal
year ended March 31, 1996. The decrease in cash used for
operating activities primarily resulted from the decrease in
accounts receivable and inventories of $12.4 million
attributable to the seasonality of Sun World's agricultural
operations offset by the decrease in accounts payable of $7.2
million (which includes $11.6 million paid to satisfy certain
of Sun World's unsecured creditors pursuant to Sun World's
Plan of Reorganization). The balance of the net cash used for
operating activities resulted from the increased activity
level of Cadiz during the nine months ended December 31, 1996.
The Company currently pays no income taxes. As of
December 31, 1996, the Company has a net operating loss ("NOL")
carryforward of approximately $60.8 million for federal and
$35.5 million for state income tax purposes. Such
carryforwards expire in varying amounts through the year 2012.
In accordance with the Tax Reform Act of 1986, NOL utilization
may be subject to an annual limitation. As a result at
December 31, 1996, approximately $15.4 million of the federal
NOL is currently available to offset federal taxable income in
any future years, while the balance is available subject to
annual limitations. No annual limitations apply to the state
NOL carryforwards which expire in various amounts through the
year 2000.
CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES. Cash
provided by investing activities totalled $6.7 million during
the nine months ended December 31, 1996 as compared to cash
used for investing activities of $2.4 million during the
fiscal year ended March 31, 1996. Although Cadiz invested
$1.4 million in the purchase of land, property, plant and
equipment and in furtherance of its water transfer and storage
projects, Sun World also received proceeds of $12.4 million
from the disposal of underproducing assets through an asset
disposal program. In addition, the net cash used in
connection with the Sun World Acquisition was $4.5 million.
CASH PROVIDED BY FINANCING ACTIVITIES. Financing
activities provided $21.6 million for the nine months ended
December 31, 1996 as compared to $10.8 million during the
fiscal year ended March 31, 1996. Net proceeds from the
issuance of Common Stock, Preferred Stock and the exercise of
previously outstanding stock options totaled $37.8 million
during the nine months ended December 31, 1996 while dividends
paid on the Preferred Stock totaled $99,000. Principal
payments on short- and long-term debt totaled $17,000 and $16.4
million, respectively, for the nine months ended December 31,
1996.
OUTLOOK
With the issuance of the Sun World Notes, the Company
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 Facility.
The Sun World 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. See "Risk Factors--
Limitations on Access to Sun World Cash Flow and Dividends."
In the short-term, Cadiz expects to meet its ordinary
working capital needs through a combination of quarterly
management fee payments from Sun World, payments from Sun
World under an agricultural lease whereby Sun World now
operates the Company's 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 Sun World Indenture allowing for certain additional
payments to be made from Sun World to Cadiz, subject to Sun
World meeting specific tests and ratios.
As the Company 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, the Company anticipates generating a revenue
stream within less than a year thereafter which will be
sufficient to meet the then existing operating requirements of
the Company, although no assurances can be given.
Concurrently with the regulatory review process, the Company
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,
the Company is actively involved in further agricultural
development and reinvestment in its landholdings. Such
development will be systematic and in furtherance of the
Company's business strategy to provide for maximization of the
value of its assets.
With the issuance of the Sun World 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 Sun World 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 the Company's 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 the Company's real property has not been
materially impacted by inflation. In the event the rate of
inflation should accelerate in the future, the Company
believes the increase in the value of its real property will
exceed any increases in costs attributable to inflation.
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
complementary 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.
In 1996, the Company significantly enhanced this portfolio
through its acquisition of Sun World International, Inc. ("Sun
World"). The Sun World acquisition has made the Company one of
the largest fully integrated agricultural companies in
California. The Sun World acquisition added to the Company's
portfolio more than 17,000 acres of prime agricultural land,
packing facilities, marketing expertise, proprietary agricultural
products and the highly regarded Sun World brand name.
Sun World ships approximately 75 varieties of fresh produce
to all 50 states in the United States and exports fresh fruits
and vegetables to over 30 foreign countries. Produce grown or
distributed by Sun World reaches more than 600 accounts
including supermarket retailers, food service entities,
warehouse clubs and international trading companies throughout
North America, Europe and Pacific Rim countries. For the twelve
months ended December 31, 1996, Sun World recorded revenues of
$100.4 million.
The acquisition of Sun World also added valuable water
rights to the Company's existing water resource development
operations. In addition to its Sun World properties, the
Company holds more than 39,000 acres of land in eastern San
Bernardino County. These landholdings are underlain by
excellent groundwater resources and 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 transfer of
surplus water to public agencies which require supplemental
sources of water. The Company is currently in discussions with
several public water agencies regarding transfer and storage
agreements, although no such agreements have been reached. See
"Water Resource Development - Cadiz Water Transfer and Storage
Project."
The Company continually seeks to develop and manage its
land, water and agricultural resources for their highest and
best use. Agricultural development will enable the Company to
maximize the value of its landholdings while generating cash
flow. The Company will continue to pursue opportunities for use
of its water resources, both for internal operations and to
relieve water shortages in other portions of southern California.
General Development of Business
- -------------------------------
As part of its current business plan, the Company's land
acquisition, development activities and agricultural
operations are conducted for the purpose of enhancing the
long-term appreciation of its properties. See "Narrative
Description of Business," below.
On September 13, 1996, the Company acquired all of the
stock of a reorganized 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 (the "Plan of Reorganization")
for a net purchase price of approximately $178 million (the
"Sun World Acquisition"). 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.
The net purchase price of approximately $178 million
consisted of the following: (i) assumption of $156 million of
restructured debt with Sun World's existing lenders (of which
a principal reduction in the amount of $5.5 million was made
by Cadiz concurrent with the acquisition); (ii) $12 million to
pay claims of Sun World's unsecured creditors as determined
during the reorganization process; (iii) $7 million in cash
and stock delivered both to previous holders of the stock of
Sun World upon transfer of stock to Cadiz and to existing
unsecured creditors in satisfaction of claims; and (iv) $3
million of acquisition fees and costs.
Subsequent to the Sun World Acquisition, 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.
In addition to Sun World, over the past 13 years the
Company has acquired more than 39,000 acres in various
portions of eastern San Bernardino County, California.
Although located in desert terrain, these landholdings are
underlain by groundwater resources having active recharge of
high quality. In addition, management believes the Company's
landholdings have excellent potential for agricultural
development and other uses, including municipal, recreational,
and industrial applications.
Pursuant to its business strategy, the Company has
utilized its working capital primarily for development
purposes; that is, for purposes designed to increase the long-
term value of its properties. A portion of these expenditures
has related to the planned Cadiz Valley and Piute Valley
groundwater transfer and storage projects. See "Narrative
Description of Business - Water Resource Development," below.
In addition, agricultural development and operations continue
to be an integral part of the Company's ongoing business
strategy, maximizing the value of its landholdings while
generating cash flow. See "Narrative Description of Business
- - Agricultural Operations," below.
The Company's Sun World Acquisition is an integral part
of this strategy. Sun World has added to the Company's
portfolio approximately 17,300 acres of prime agricultural
land in the San Joaquin and Coachella Valleys, increasing the
Company's total landholdings to approximately 57,000 acres.
See "Properties," below.
In May 1992, the Company's shareholders approved the
reincorporation of the Company into Delaware under the name
Cadiz Land Company, Inc. As a part of the reincorporation,
the Company's Common Stock was reverse split on a one-for-five
basis, giving each shareholder of the Company one share of
Cadiz Land Company, Inc. stock for every five shares of
Pacific Agricultural Holdings, Inc. stock held at the
time of the reincorporation.
Financial Information About Industry Segments
- ----------------------------------------------
During its nine months ended December 31, 1996, the
Company 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, the Company
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 the Company
are currently focused on agricultural operations (primarily
through its wholly-owned Sun World subsidiary) and water
resource development. Agricultural development will enable
the Company to maximize the use of its landholdings while
generating cash flow. The Company 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.
AGRICULTURAL OPERATIONS
With the Sun World Acquisition, the Company has become
one of California's largest vertically integrated
agricultural companies which combines an extensive research
and development program, year round sourcing, farming and
packing activities and strong marketing capabilities. For the
twelve months ended December 31, 1996, Sun World recorded
revenues of $100.4 million.
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 and
plums. Sun World also grows and markets other fruits and vegetables,
including 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.
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 less subject to the same 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 Superior Seedless (TM) table grapes,
Black Diamond (TM) plums, Sun World Seedless (R) watermelons, Star
Sweet (R) super red grapefruit, Honeycot (R) apricots, Amber Crest (R)
peaches and Sun World sweet colored peppers. These products
evolved 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 "Proprietary Product Development," below.
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 "Properties,"
below.
Sun World properties are primarily dedicated to producing
permanent commercial crops and, to a lesser extent, annual (or
row) crops. Additionally, over 1,300 acres are currently
utilized for developing crops (e.g. vines and trees that have
not yet reached a commercial maturity). Subsequent to the Sun
World Acquisition, the Company 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 tree fruit. Given the Company's
current crop allocation plan, it is now redeploying marginally
productive acreage to produce more varieties of crops which
are available for delivery at peak pricing windows throughout
the year.
Under an agricultural lease entered into concurrently
with the Sun World Acquisition, Sun World also operates the
Company's 1,600 acres of developed agricultural property at
Cadiz. The Company believes that its Cadiz Valley
agricultural operations will benefit by virtue of the ability
of the Company to grow, pack and market the Cadiz produce
under the Sun World label and to market it to Sun World's
worldwide customer base. The financial statement impact of
this intercompany operating lease is eliminated in consolidation.
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
servicing 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 Sun
World production, as well as for other commercial clients.
Currently, Sun World owns four facilities, three of which are
located in the Coachella Valley and one of which is located
in the San Joaquin Valley. See "Properties," below.
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. As a result, on average, the Company sells 12
to 13 million units annually with an average wholesale value
of approximately $120 million.
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 not
only reduces the impact that unfavorable weather conditions
and infestations could have on Sun World's packing and
marketing operations but also provides Sun World with a longer
selling season for many crops since the harvests occur at
different times. In addition, geographic diversification also
allows Sun World the ability to provide the quality and
breadth of product throughout the year which is being demanded
by retailers.
Sun World's customer base consists of more than 600
accounts including 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 American
Stores; 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
(representing approximately 15% of calendar year 1996 gross
sales made by Sun World) accounts for more than 10% of Sun
World's revenues.
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 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 tree 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.
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;
however, the expiration of any individual patent will not have a material
effect upon Sun World's operations.
Additionally, Sun World has a 50% ownership interest in American
Sunmelon, a partnership engaged in the proprietary development, production
and marketing of seedless watermelon seed. American Sunmelon generated
net income of approximately $3.5 million for calendar year 1996.
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. The Company's 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 the Company 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. The Company's 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 the Company to be in the range of 20,000 to 30,000 acre-feet.
See "Properties - The Cadiz Property."
Pursuant to an Environmental Impact Report ("EIR") and land use
approvals by San Bernardino County, the Company 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. The Company
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, the Company 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 Company began technical and environmental
investigations in 1994, and is pleased with the progress made to date.
The Company 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. The Company
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. The Company 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. The
Company 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 the Company in southeastern California.
SUN WORLD WATER RESOURCES. The Sun World Acquisition brought to the
Company valuable water rights in various parts of central and southern
California. The Company 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
the Company's other groundwater resources, and will enhance the Company's
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 "-Significant Leverage and Working Capital Requirements."
In connection with the water resource development
activities of the Company, revenues are not expected to be
seasonal in nature. The Company 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.
The Company faces competition for the acquisition,
development and sale of its properties from a number of
competitors, some of which have significantly greater
resources than the Company. The Company 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, the
Company believes that price and reliability of delivery are
the principal competitive factors affecting transfers of water
in California.
EMPLOYEES
As of December 31, 1996, the Company 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
the Company's employees are represented by a labor union pursuant
to a contract that expires in 1999. Generally, the Company believes
that its employee relations are good.
REGULATION
Certain areas of the Company's operations are subject to
varying degrees of federal, state and local laws and
regulations. The Company'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 the Company's
capital expenditures, earnings or competitive position.
Environmental concerns are, however, inherent in most major
agricultural operations, including those conducted by the Company,
and there can be no assurance that the cost of compliance with
environmental laws and regulations in the future will not be material.
The Company'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. Existing environmental regulations
have not, in the past, had a materially adverse effect upon
the operations of the Company, and the Company believes that
existing environmental regulations will not, in the future,
have a materially adverse effect upon its operations. There
can be no assurances, however, as to the effect of any
environmental regulations which may be adopted in the future.
See "Risk Factors - Environmental Matters" and "-Regulation."
As the Company proceeds with the development of its
properties, including related infrastructure, the Company 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 the Company 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 the Company will receive
desired approvals for future development plans. See "Risk
Factors - Regulatory Approvals."
PROPERTIES
The Company currently leases its executive offices in Rancho
Cucamonga, California; however, within the next several months,
the Company is relocating these offices to Los Angeles County.
The Company also maintains a development office in San Bernardino,
California. Sun World owns its main packing facilities and
administrative offices in Bakersfield, California and owns 3
packing facilities and leases its sales offices in Coachella,
California. The Company 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 the Company's
significant properties.
THE CADIZ PROPERTY
In 1984, the Company 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, the
Company has acquired over 27,000 acres in the Cadiz vicinity.
The Company 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. The Company
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 the Company's underground water basin.
Substantially all Cadiz acreage is held in fee directly by
the Company.
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 Sun World
Notes, which were issued in the aggregate principal amount of
$115 million on April 16, 1997. 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 the Company by a combination
of the satellite imaging and geological techniques which were
used by the Company 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
the Company in fee title as to approximately 3,600 acres, with
the remaining acreage under option.
The Company has commenced the development of the water
resources of this property. See "Business - Narrative Description
of Business - Water Resource Development."
OTHER PROPERTIES
In addition to the Cadiz and Piute properties, the
Company owns approximately 4,200 additional acres in the
Mojave Desert as to which development has not yet commenced.
The Company 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 the Company's non-Sun World fee property is subject
to encumbrances in favor of the Company's current primary lender
as security for a loan with an outstanding balance of approximately
$9.7 million as of May 7, 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 the Company at Cadiz, California, which the County of
San Bernardino has designated for agricultural use in its
General Plan.
The Company 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 the Company 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. 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 the action 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. See
"Risk Factors - Potential Adverse Effect of Rail-Cycle Project
on the Company."
In the normal course of its agricultural operations, Sun
World 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. See "Risk
Factors - Environmental Matters" and "-Regulation."
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
financial position of the Company.
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of May 7, 1997, the ownership of
Common Stock of the Company by each stockholder who is known by the Company
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 below, and by all directors and officers as a group.
Amount and Nature of Percent
Name and Address Beneficial Ownership of class
- ------------------------------ ----------------------- ------------
Morgan Stanley 2,452,750(1) 7.49%
Group, Inc., et al.
1251 Avenue of the Americas
New York, NY 10020
Fidelity International
Limited, et al. 2,434,067(2) 7.62%
Pembroke Hall
42 Crow Lane
Hamilton, Bermuda
Dwight W. Makins 425,000(3) 1.32%
Beaurepaire House
Bramley, Tadley
Hampshire RG26 5EH
United Kingdom
Keith Brackpool 1,113,893(4) 3.40%
10535 Foothill Blvd., Suite 150
Rancho Cucamonga, CA 91730
J.F.R. Hammond 937,012(5) 2.88%
10 Compton Terrace
London N1 2UN
United Kingdom
Stephen D. Weinress 201,158(6) 0.63%
3333 Michelson Drive
Irvine, CA 92715
Susan K. Chapman 127,700(7) 0.40%
10535 Foothill Blvd., Suite 150
Rancho Cucamonga, CA 91730
Timothy J. Shaheen 155,000(8) 0.48%
P.O. Box 80298
Bakersfield, CA 93380
Stanley E. Speer 150,000(9) 0.47%
P.O. Box 80298
Bakersfield, CA 93380
All Directors and Officers
as a Group 3,109,763(3)(4)(5)(6) 9.08%
(7 individuals) (7)(8)(9)
(1) According to information provided to the Company, Morgan
Stanley Group, Inc. ("MS Group") may be deemed to be the
indirect beneficial owner of 1,696,753 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. MSAM is also the indirect beneficial
owner of 720,000 Conversion Shares and 35,997 Dividend Shares.
(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 2,434,067 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, 2,426,667 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 the Company's
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) Includes 300,000 shares underlying presently exercisable
options.
(4) Includes 875,000 shares underlying presently exercisable
options. Does not include 75,000 shares issuable upon
the satisfaction of certain conditions established by
the Board of Directors, none of which have been met.
(5) Includes 285,017 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.
(6) Includes 125,000 shares underlying presently exercisable
options. Also includes 19,200 Conversion Shares and
958 Dividend Shares.
(7) Includes 125,000 shares underlying presently exercisable
options.
(8) 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.
(9) 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.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following sets forth certan biographical information, the present
occupation and business experience for the past five years of each director
and executive officer:
Name Age Position with the Company
-------------------- ---- ---------------------------
Dwight W. Makins 46 Chairman of the Board
Keith Brackpool 39 Chief Executive Officer and Director
J.F.R. Hammond 55 Director
Stephen D. Weinress 56 Director
Susan K. Chapman 43 Chief Financial Officer and Secretary
Timothy J. Shaheen 37 Chief Executive Officer of Subsidiary
Stanley E. Speer 36 Senior Vice President,
Chief Financial Officer and Secretary
of Subsidiary
Dwight W. Makins was elected as Chairman of the Board 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.
Keith Brackpool is a founder of the Company, and has
served as a member of the Company's 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 the Company. 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.
J.F.R. Hammond was named to the Company's 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 is a
member of the Audit Committee and Compensation Committee of
the Board of Directors.
Stephen D. Weinress was appointed a director of the
Company 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.
Susan K. Chapman became Chief Financial Officer and
Secretary of the Company in November 1993. From 1985 until
she joined the Company, 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 the 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.
Timothy J. Shaheen was appointed Chief Executive Officer
and Director of the Company's Sun World subsidiary in
September 1996. 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 the Company in September 1996,
following completion of the acquisition by the Company of Sun
World, as Senior Vice President, Chief Financial Officer and
Secretary of Sun World. Mr. Speer has fifteen years of
experience in public accounting with the accounting firm of
Coopers & Lybrand LLP. From 1992 until September 1996, Mr.
Speer 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.
Directors of the Company 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 the Company.
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
Company's executive officers during the nine months ended
December 31, 1996 and the fiscal years ended March 31, 1995
and 1996.
SUMMARY COMPENSATION TABLE
-------------------------
Long-Term
Compensation Awards
----------------------
Name and Annual Compensation(2) Restricted
Principal Fiscal -------------------- Stock
Position Year (1) Salary Bonus Stock Awards Options
- ---------------- --------- --------- --------- ------------ ---------
Keith Brackpool 12/31/96 $ 306,250 $ 625,000 $ 656,250(3) 250,000(4)
Chief Executive 03/31/96 350,000 175,000 -0- -0-
Officer 03/31/95 280,000 -0- -0- 750,000
Susan K. Chapman 12/31/96 95,000 25,000 -0- -0-
Chief Financial 03/31/96 130,000 -0- -0- -0-
and Secretary 03/31/95 110,000 -0- -0- 25,000(5)
Timothy J.
Shaheen(6) 12/31/96 181,891 125,000 -0- 400,000(7)
Chief Executive 03/31/96 44 551 -0- -0- -0-
Officer-Sun World
Stanley E.
Speer(8) 12/31/96 79,607 56,250 -0- 200,000(9)
Chief Financial
Officer and
Secretary - Sun World
- --------------------------
(1) In December 1996 the Company 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 executive
officers for whom compensation has been disclosed
for the nine months ended December 31, 1996
constituted all of the Company's executive officers as
of December 31, 1996. The total annual salary and
bonus of each such officer, on an annualized basis,
exceeds $100,000.
(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, the Company 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 the Company's 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
the Company 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.
(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) 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.
(6) Mr. Shaheen joined the Company 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.
(7) The 400,000 options granted to Mr. Shaheen during the
fiscal year ended December 31, 1996 were conditional
options, of which 150,000 such options have since
vested.
(8) Mr. Speer joined the Company in August 1996 and on
September 14, 1996 was appointed Chief Financial
Officer and Secretary of Sun World.
(9) The 200,000 options granted to Mr. Speer during the
fiscal year ended December 31, 1996 were conditional
options, of which 150,000 such options have since
vested.
OPTION GRANTS IN LAST FISCAL YEAR
Percent
of
Total
Options
Granted Exer- Potential Realizable
to cise Value at Assumed
Employees Price Annual Rates of Stock
in 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
(1) All options granted to the named officer were incentive
options.
(2) Also includes options granted to consultants during the
fiscal year.
(3) All options were granted at market value (average of
closing bid and asked prices for the Company's 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 the
Company is traded at $9.00 per share.
(7) Of this total, 150,000 options have vested, 100,000
options vest within one year following the date of the
grant, 50,000 options are conditioned upon certain
performance criteria associated with the Company, and
100,000 options are conditioned upon certain criteria to
be established by the Board of Directors.
(8) Of this total, 150,000 options have vested, 25,000 options
are conditioned upon certain performance criteria
associated with the Company, and 25,000 options are
conditioned upon certain criteria to be established by the
Board of Directors.
FISCAL YEAR-END OPTION VALUES
Value of
Number of Unexercised
Unexercised In-the-Money
Options at Options at
FY-End (#) FY-End ($)
Exercisable/ Exercisable/
Name Unexercisable Unexercisable(1)
- ------------------ ------------------ ----------------
Keith Brackpool 750,000/250,000(2) $281,250/$93,750
Susan K. Chapman 125,000/0(3) $196,875/0
Timothy J. Shaheen 0/400,000(4) $0/150,000
Stanley E. Speer 0/200,000(5) $0/75,000
(1) Based upon the Nasdaq National Market closing sales price
per share at fiscal year end. No options were exercised
by the named executive officers during the last fiscal
year.
(2) Includes 750,000 shares underlying presently exercisable
options. Does not include 250,000 shares underlying
conditional options, the conditions to the vesting of
which had not been met as of December 31, 1996.
(3) Includes 125,000 shares underlying presently exercisable
options.
(4) Does not include 400,000 shares underlying conditional
options, the conditions to the vesting of which had not
been met as of December 31, 1996.
(5) Does not include 200,000 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 pursuant to a Compensation Agreement
effective April 2, 1993. Under the terms of this Agreement, as amended,
Mr. Brackpool receives compensation of $41,667 per month, of which $12,500
is paid by Sun World. Mr. Brackpool also receives the use of an autombile
owned by the Company.
Ms. Chapman is compensated pursuant to a letter agreement effective
November 5, 1993 which provides for base compensation of $130,000 per annum.
Ms. Chapman also receives the use of an automobile owned by the Company.
Timothy J. Shaheen has been engaged by the Company to act 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 the grant to Mr. Shaheen of an aggregate of 400,000
incentive stock options for the purchase of Common Stock of the Company 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 the Company's Board of Directors. Mr. Shaheen also receives the use of an
automobile leased by the Company.
Stanley E. Speer has been engaged by the Company to act as Senior Vice
President, Chief Financial Officer and Secretary of Sun World. In this
capacity, Mr. Speer receives compensation from Sun World at an annual rate
of $225,000 and the Board of Directors has approved the grant to Mr. Speer
of an aggregate of 200,000 incentive stock options for the purchase of
Common Stock by the Company 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 the Company's Board of Directors. Mr.
Speer also receives the use of an automobile leased by the Company.
COMPENSATION OF DIRECTORS
- -------------------------
Mr. Brackpool does not receive any additional compensation for services as
a director of the Company.
Mr. Makins receives cash compensation for his services as Chairman 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 the Company, at a
rate of $1,000 per day. During the Company's 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 Director
of the Company's Sun World subsidiary in the amount of $25,000 per year,
payable quarterly in advance. During the Company's 1996 fiscal year, Mr.
Makins received total cash compensation of $12,500 from Sun World pursuant to
this arrangement.
Mr. Hammond receives cash compensation for his services as a Director
pursuant to a Compensation Agreement effective April 2, 1993, which provides
for compensation of $25,000 per year, payable quarterly in advance. During
the Company's 1996 fiscal year, Mr. Hammond received total cash compensation
of $18,750 pursuant to this arrangement.
Mr. Weinress receives cash compensation for his services as a Director in
the amount of $25,000 per year, payable quarterly in advance. During the
Company's 1996 fiscal year, Mr. Weinress received total cash compensation
of $18,750 pursuant to this arrangement.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -----------------------------------------------
Since April 1, 1994, the Company has issued in private placements a total
of 190,000 shares of 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 the Company's outstanding Common Stock in their
capacity as discretionary manager for a number of investment funds. See
"Principal Stockholders."
Since April 1, 1994, the Company has issued in private placements a total
of 90,000 shares of 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 maybe deemed to be the indirect beneficial owner of in excess of five
percent of the Company's outstanding Common Stock in its capacity as an
Investment Advisor. In addition, on September 13, 1996, the Company issued
2,700 shares of Series A Preferred for $1,000 per share to MSAM in an
institutional private placement which provided financing for the Company's
acquisition of Sun World. The Series A Preferred was converted on May 7,
1997 into 720,000 Conversion Shares at a conversion price of $3.75 per share.
See "Principal Stockholders" and "Description of Securities."
In connection with a private placement in October 1995, the Company 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 the Company, is an affiliate.
In addition, on September 13, 1996, the Company 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 into
440,000 Conversion Shares on May 7, 1997 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 the Company, entered into an agreement
with the Company pursuant to which L.H. Friend provided investment banking
services with respect to the development by the Company of its water
resources at its Piute property. As compensation for these services, the
Company agreed to pay to L.H. Friend a retainer fee of $2,000 per month
through July 31, 1995. The Company has also paid the Weinress Group,
a consulting firm which is an affiliate of Mr. Weinress, consulting fees
totaling $55,950 since April 1, 1995. The Company believes that the terms
of these transactions were at least as favorable to the Company as those
which could have been negotiated in arm's-length transactions with unaffiliated
third parties. In addition, for services rendered in connection with the
placement of the Series A Preferred in September 1996, the Company 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."
Except as otherwise disclosed, each of the transactions described above
was entered into by the Company on terms which were the same as, or equivalent
to, the terms which the Company had negotiated at arm's-length with
independent parties in the same transactions.
SELLING SECURITY HOLDERS
The following table sets forth, as of May 7, 1997, certain ownership
information with respect to the Selling Security Holders. The information
set forth below is based upon reports of beneficial ownership filed with the
Securities and Exchange Commission and records of the Company and its transfer
agent, Continental Stock Transfer & Trust Company. If the Selling Security
Holders were to sell all of the Shares covered by this Prospectus, (1) each
Selling Security Holder would have no further beneficial interest in the
Company's Common Stock except as otherwise noted. Unless noted, the Selling
Security Holders have not had any position, office or other material
relationship with the Company or any of its affiliates within the past
three years.
SHARES
BENEFICIALLY
OWNED SHARES
NAME (2) OFFERED (2)
- ---------------------------------- ------------ ------------
Cooperative Centrale Raiffeisen-
Boerenleenbank B.A. ("Rabobank")(3) 240,000 (6) 240,000 (6)
Nina J. Cohen 12,500 (7) 12,500 (7)
Lar Ze Company 50,500 (8) 50,500 (8)
Zenith Insurance Company 80,000 (9) 80,000 (9)
Capital Group Companies, Inc. 1,415,000 (10) 250,000 (10)
MeesPierson Securities, Ltd. 2,169,971 (11) 2,169,971 (11)
Gamma Leasing Ltd. 69,998 (12) 69,998 (12)
BT Holdings (NY) Inc.
(Bankers Trust) 1,530,998 (13) 1,119,998 (13)
Morgan Stanley Asset
Management, Inc. 2,452,750 (14) 755,997 (14)
Heritable & General Investment
Bank Ltd. 349,995 (15) 349,995 (15)
Zaphiriou Zarifi Overseas
Equities, Inc. 419,998 (16) 419,998 (16)
Singer & Friedlander (IOM) Ltd. 419,998 (17) 419,998 (17)
Sega Associates II, L.P. 139,998 (18) 139,998 (18)
Wood Gundy (London) Ltd. 137,857 (19) 137,857 (19)
Smith Barney Inc. (5) 491,959 (20) 491,959 (20)
The Weinress Group (4) 20,158 (21) 20,158 (21)
Henderson Crosthwaite Institutional
Brokers Ltd. (5) 14,558 (22) 14,558 (22)
Henry Ansbacher & Co. Limited(3) 687,569 (23) 284,902 (23)
ING Baring (U.S.)
Capital Corporation(3) 75,000 (24) 75,000 (24)
Hunter & Company(5) 50,000 (25) 50,000 (25)
Board of Trustees of the Policemen
& Firemen Retirement System of the
City of Detroit 83,999 (26) 83,999 (26)
Irving B. Harris Revocable Trust 145,598 (27) 145,598 (27)
Roxanne H. Frank Trust 60,198 (28) 60,198 (28)
Harris Foundation 16,798 (29) 16,798 (29)
Couderay Partners 33,598 (30) 33,598 (30)
Jerome Kahn, Jr. Revocable Trust 23,798 (31) 23,798 (31)
Thomas J. Trzanowski IRA 116,760 (32) 116,760 (32)
Randall D. Smith IRA 1,027,591 (33) 1,027,591 (33)
Russell Smith IRA 13,442 (34) 13,442 (34)
Gary Smith IRA 13,999 (35) 13,999 (35)
Jeffrey A. Smith IRA 40,881 (36) 40,881 (36)
Barbara Stovall IRA 12,876 (37) 12,876 (37)
Mary Smith IRA 1,962 (38) 1,962 (38)
John W. Adams IRA 32,481 (39) 32,481 (39)
____________________________________________________
(1) The Selling Security Holders are not required to sell all
or any part of the Shares covered by this Prospectus; therefore,
the number and percentage of outstanding Shares to be held by
them after completion of the offering may exceed that indicated
herein.
(2) Includes Option Shares and Warrant Shares offered under this
Prospectus which have not yet been issued.
(3) Lender or former lender to the Company. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
(4) A consulting firm which is an affiliate of a Director of
the Company. See "Management-Directors and Executive Officers."
(5) Consultant to the Company.
(6) Includes 240,000 Warrant Shares underlying Warrants
exercisable at $0.05 per share, which expire December 31, 2000.
(7) Includes 12,500 Placement Shares.
(8) Includes 50,500 Placement Shares.
(9) Includes 80,000 Placement Shares.
(10) Includes 250,000 Placement Shares. Assuming the sale of
all Shares covered by this Prospectus, Capital Group Companies, Inc.
would continue to beneficially own 1,165,000 shares of Common Stock
(11) Includes 2,066,659 Conversion Shares and 103,312 Dividend Shares.
(12) Includes 66,666 Conversion Shares and 3,332 Dividend Shares.
(13) Includes 1,066,666 Conversion Shares and 53,332 Dividend Shares.
(14) Includes 720,000 Conversion Shares and 35,997 Dividend Shares.
Assuming the sale of all Shares covered by this Prospectus,
Morgan Stanley Asset Management, Inc. would continue to beneficially
own 1,696,753 shares of Common Stock.
(15) Includes 333,332 Conversion Shares and 16,663 Dividend Shares.
(16) Includes 400,000 Conversion Shares and 19,998 Dividend Shares.
(17) Includes 400,000 Conversion Shares and 19,998 Dividend Shares.
(18) Includes 133,333 Conversion Shares and 6,665 Dividend Shares.
(19) Includes 133,332 Conversion Shares and 4,525 Dividend Shares.
(20) Includes 468,533 Conversion Shares and 23,426 Dividend Shares.
(21) Includes 19,200 Conversion Shares and 958 Dividend Shares.
(22) Includes 13,866 Conversion Shares and 692 Dividend Shares.
(23) Includes 284,902 Placement Shares. Assuming the sale of all
Shares covered by this Prospectus, Henry Ansbacher & Co. Limited
would continue to beneficially own 402,667 shares of Common Stock.
(24) Includes 75,000 Warrant Shares underlying Warrants which are
exercisable for five years beginning on April 30, 1997 at an
exercise price equal to the average daily closing price of the
Company's Common Stock over a ten trading day period ending on
April 29, 1997.
(25) Includes 50,000 Option Shares underlying Options exercisable at
$5.50 per share, which expire January 9, 2000.
(26) Includes 80,000 Conversion Shares and 3,999 Dividend Shares.
(27) Includes 138,666 Conversion Shares and 6,932 Dividend Shares.
(28) Includes 57,333 Conversion Shares and 2,865 Dividend Shares.
(29) Includes 16,000 Conversion Shares and 798 Dividend Shares.
(30) Includes 32,000 Conversion Shares and 1,598 Dividend Shares.
(31) Includes 22,666 Conversion Shares and 1,132 Dividend Shares.
(32) Includes 111,200 Conversion Shares and 5,560 Dividend Shares.
(33) Includes 978,666 Conversion Shares and 48,925 Dividend Shares.
(34) Includes 12,800 Conversion Shares and 642 Dividend Shares.
(35) Includes 13,333 Conversion Shares and 666 Dividend Shares.
(36) Includes 38,933 Conversion Shares and 1,948 Dividend Shares.
(37) Includes 12,266 Conversion Shares and 610 Dividend Shares.
(38) Includes 1,866 Conversion Shares and 96 Dividend Shares.
(39) Includes 30,933 Conversion Shares and 1,548 Dividend Shares.
PLAN OF DISTRIBUTION
The Company has been advised by the Selling Security
Holders that there are no underwriting arrangements with
respect to the sale of the Shares and Warrants, that the
Shares and Warrants will be sold from time to time (i) as
to the Shares only, in the over-the-counter market
(through Nasdaq) at then prevailing prices, or (ii) as to
the Shares and the Warrants, in private transactions at
negotiated prices, and that usual and customary brokerage
fees may be paid by the Selling Security Holders in
connection therewith. The Company will receive none of
the proceeds from sales by the Selling Security Holders of
the Shares and Warrants.
In connection with such sales, the Selling
Security Holders and any participating broker may be
deemed to be "underwriters" of the Shares and Warrants, as
such term is defined in the Act, although the offering of
the Shares and Warrants will not be underwritten by a
broker-dealer or investment banking firm. Sales of the
Shares may be made in the over-the-counter market to
broker-dealers making a market in the Common Stock or to
other broker-dealers, and such broker-dealers, upon their
resale of the Shares, may also be deemed to be "underwriters"
under the Act.
The Company has agreed to indemnify certain of the
Selling Security Holders against liabilities they may
incur as a result of any untrue statement of a material
fact in the Registration Statement of which this
Prospectus forms a part, or any omission herein or therein
to state a material fact necessary in order to make the
statements made, in the light of the circumstances under
which they were made, not misleading. Such
indemnification includes liabilities that such Selling
Security Holders may incur under the Act. No such
indemnification must be given by the Company if the untrue
statement or omission was made in reliance upon and in
conformity with information furnished in writing to the
Company by the Selling Security Holder for use in the
Registration Statement.
The Company will bear all costs and expenses of
the registration of the Shares and Warrants under the Act
and certain state securities laws, other than fees of
counsel (if any) retained by the Selling Security Holders
and any discounts or commissions payable with respect to
sales of the Shares and Warrants.
The Company has advised the Selling Security
Holders of (i) the requirement for delivery of this
Prospectus in connection with any sale of the Shares or
Warrants, and (ii) the relevant cooling off period
specified by Regulation M and restrictions upon the Selling
Security Holders' bidding for or purchasing securities of
the Company during the distribution of Shares and
Warrants.
DESCRIPTION OF SECURITIES
GENERAL
- -------
The Company is authorized to issue 45,000,000
shares of Common Stock, par value $.01 per share, and
100,000 shares of Preferred Stock, par value $.01 per
share ("Preferred Stock").
COMMON STOCK
- --------------
Holders of Common Stock are entitled to one vote,
either in person or by proxy, for each share held of
record by them on all matters submitted to a vote of
stockholders. Except as otherwise provided by law, action
can be taken by a majority of shares entitled to vote at a
meeting. Holders of Common Stock have no cumulative
voting rights. Holders of Common Stock are entitled to
dividends when, as and if declared by the Board of
Directors out of funds legally available therefor, subject
to the prior rights of the holders of any Preferred Stock.
In the event of liquidation or dissolution and winding up
of the Company, holders of Common Stock are entitled to
share ratably in the assets of the Company remaining after
payment of liabilities and after provision has been made
for each class of stock, including any Preferred Stock
outstanding at that time, that has preference over the
Common Stock. Holders of Common Stock, as such, have no
conversion, preemptive or other subscription rights, and
there are no redemption or sinking fund provisions
applicable to the Common Stock. All of the outstanding
shares of Common Stock are, and, when issued, the Option
Shares and Warrant Shares of Common Stock offered under this
Prospectus will be, fully paid and nonassessable.
PREFERRED STOCK
- ----------------
Shares of Preferred Stock may be issued without
stockholder approval. The Board of Directors is
authorized to issue such shares in one or more series and
to fix the rights, preferences, powers, qualifications,
limitations and restrictions thereof, including dividend
rights and rates, conversion rights, voting rights, terms
of redemption, redemption prices, liquidation preferences
and the number of shares constituting any series or the
designation of such series, without any vote or action by
the stockholders.
To date the Board of Directors has designated
three series of Preferred Stock for issuance, including
(i) up to 60,000 shares of Series A Preferred, of which
27,631 shares have been issued and no shares currently
remain outstanding; (ii) up to 1,000 shares of Series B
Preferred, of which 1,000 shares have been issued and 90
shares currently remain outstanding; and (iii) up to 365
shares of Series C Preferred, of which 300 shares have
been issued and no shares currently remain outstanding.
The Series A Preferred is convertible into shares
of Common Stock, at the option of the holder, at a price
of $3.75 per share. Holders thereof are entitled to
cumulative dividends payable at a rate of 6% per annum.
The Series A Preferred is also mandatorily convertible in
full at the option of the Company at any time prior to
May 12, 1997 provided that, as a condition to such conversion,
the Company shall pay to holders one full year's worth of
dividends (less the amount of any dividends theretofore
paid). The Company exercised this right effective May 7,
1997, and the then outstanding shares of Series A Preferred
were converted into 7,314,917 shares of Common Stock.
Both the Series B Preferred and the Series C Preferred are
convertible into shares of Common Stock 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.
Holders thereof are also entitled to cumulative dividends at
the rate of 6% per annum until conversion. The Company
reserves the right to redeem any convertible shares of
Preferred Stock for their full cash equivalent by giving
the investors five days' notice.
Subject to the rights of creditors, holders of
Series A Preferred are entitled, in the event of any
voluntary or involuntary liquidation of the Company, to an
amount in cash equal to $1,000 for each share outstanding
and for each share issuable with respect to all accrued
and unpaid dividends. Holders of Series B Preferred and
Series C Preferred have similar liquidation rights as to
an amount in cash equal to $10,000 for each share
outstanding and for each share issuable with respect to
all accrued and unpaid dividends. In the event of such a
liquidation, the Series A Preferred, Series B Preferred
and Series C Preferred would rank equally with each other
and on a parity with any other class or series of
Preferred Stock of the Company, and would rank senior and
prior to the Company's Common Stock.
Except as provided by law, holders of Series A
Preferred, Series B Preferred and Series C Preferred shall
not be entitled to vote upon any matter submitted to a
vote of the Company's stockholders.
As of the date of this Prospectus, the Company has
no current plans for the issuance of any additional shares
of Preferred Stock. The Company's ability to issue
additional Preferred Stock is restricted by covenants in
the Sun World Indenture. However, any Preferred Stock that
may be issued in the future could rank prior to the Common
Stock offered hereby with respect to dividend rights and
rights on liquidation. The Board of Directors may,
without stockholder approval, issue Preferred Stock with
voting and conversion rights that could adversely affect
the voting power of holders of the Common Stock offered
hereby or create impediments to persons seeking to gain
control of the Company, although there is no present
intention to do so. The issuance of such shares could
prevent holders of the Company's Common Stock from
receiving a premium for their shares from a potential
third-party acquiror. See "Risk Factors - Authorization
of 'Blank Check' Preferred Stock."
WARRANTS
- --------
The Warrants offered for sale hereunder by one of
the Company's institutional lenders are exercisable for
the purchase of up to 240,000 shares of Common Stock at an
exercise price of $.05 per share. These Warrants expire on
December 31, 2000. The Warrants offered by the other
institutional lender will become exercisable for five years
beginning on April 30, 1997 for the purchase of up to 75,000
shares of Common Stock at an exercise price equal to the average
daily closing price of the Company's Common Stock over a ten
trading day period ending on April 29, 1997. The exercise
price and the number and kind of securities which can be
purchased upon exercise of all of the Warrants are subject to
standard anti-dilution and other adjustments to be made from
time to time in the event of any (i) dividend or distribution
in shares of Common Stock, (ii) subdivision, reclassification
or combination of Common Stock, (iii) issuance to all holders
of Common Stock of rights or warrants entitling them to purchase
shares of Common Stock at a price less than the current market
price of the Common Stock, (iv) issuance to all holders of Common
Stock of evidences of the Company's indebtedness or assets (excluding
cash dividends or distributions) or rights or warrants (excluding
those referred to in (iii) above), or (v) issuance of shares of
Common Stock, or securities convertible into or exchangeable for
shares of Common Stock, at a price less than the current market
price of the Common Stock.
TRANSFER AGENT
- ---------------
The transfer agent for the Company's Common Stock
is Continental Stock Transfer & Trust Company, New York,
New York.
LEGAL MATTERS
Certain legal matters in connection with the
issuance of the securities offered hereby will be passed
upon for the Company by Miller & Holguin, attorneys at
law, Los Angeles, California.
EXPERTS
The consolidated financial statements of the
Company as of December 31 and March 31, 1996 and for
the nine month period ended December 31, 1996 and for
each of the two years ended March 31, 1996, and of Sun
World as of September 13, 1996 and for the period January 1,
1996 through September 13, 1996, which are included in this
Prospectus have been so included in reliance on the report
of Price Waterhouse LLP, independent auditors, given on
the authority of said firm as experts in accounting and
auditing.
The consolidated financial statements of Sun World as of
December 31, 1995 and 1994 and for each of the two years
ended December 31, 1995 and 1994 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 TO FINANCIAL STATEMENTS
Index to Audited Financial Statements of Cadiz Land Company, Inc.
for the nine months ended December 31, 1996:
Report of Independent Accountants...................................F-2
Consolidated Balance Sheet..........................................F-3
Consolidated Statement of Cash Flows................................F-5
Consolidated Statement of Operations................................F-6
Consolidated Statement of Redeemable Preferred Stock,
Preferred Stock, Common Stock and Other Stockholders' Equity.......F-7
Notes to the Consolidated Financial Statements......................F-9
Index to Audited Financial Statements of Sun World International, Inc.
for the years ended December 31, 1995 and 1994:
Independent Auditors' Report.........................................F30
Consolidated Balance Sheets..........................................F31
Consolidated Statements of Operations and Accumulated Deficit........F32
Consolidated Statements of Cash Flows................................F33
Notes to Consolidated Financial Statements...........................F34
Index to Audited Financial Statements of Sun World International, Inc.
for the period January 1, 1996 through September 13, 1996:
Report of Independent Accountants....................................F49
Consolidated Balance Sheet...........................................F50
Consolidated Statement of Operations & Accumulated Deficit...........F51
Consolidated Statement of Cash Flows.................................F52
Notes to the Consolidated Financial Statements.......................F53
Index to Unaudited Pro Forma Combined Financial Statements of
Cadiz Land Company, Inc. and Sun World International, Inc.:
Pro Forma Combined Statement of Operations for the nine months
ended December 31, 1996.............................................F70
Notes to the Pro Forma Combined Statements of Operations.............F71
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 Note 7,
which is as of March 31, 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.
* * *
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.
* * * * * *
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.
DESCRIPTION OF TRANSACTION
- --------------------------
On September 13, 1996, Cadiz Land Company, Inc. (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 (the "Plan"). The acquisition is accounted
for by the purchase method of accounting. For a further explanation of
the transaction, see the Consolidated Financial Statements for the nine
months ended December 31, 1996, included herein.
The following unaudited pro forma statement of operations for the nine
months ended December 31, 1996 reflects combined results of operations as
if the acquisition had occurred on April 1, 1996.
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
period. See footnotes (a) and (b) below. 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 (h) for a more detailed
explanation of charges directly attritutable 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, including the notes
thereto, 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 the Company.
CADIZ LAND COMPANY, INC. &
SUN WORLD INTERNATIONAL, INC.
Pro Forma Combined Statement of Operations
For the nine months ended December 31, 1996
(In thousands except per share data)
(Unaudited)
Cadiz Land Sun World Pro Forma
Company, Inc. Intn'l Adjustments
(Audited) Inc. Increase Pro Forma
(a) (b) (Decrease) Combined
--------- ----------- ------------ ----------
Revenues $ 23,780 $ 74,230 $ -0- $ 98,010
-------- --------- ------------ ----------
Costs and expenses:
Cost of sales 17,725 52,596 (148)(c) 70,173
Resource development 1,133 -0- -0- 1,133
Landfill prevention
activities 394 -0- -0- 394
General and
administrative 4,924 3,358 (504)(c) 7,778
Depreciation and
amortization 1,039 4,082 947 (d) 6,068
------------- ------------ ------------ -------
Total costs and
expenses 25,215 60,036 295 85,546
Operating income (loss) (1,435) 14,194 (295) 12,464
Interest expense, net 5,203 7,323 (654)(e) 11,872
Reorganization items -0- 4,796 -0- 4,796
------------- ------------ ------------ -------
Net income (loss)
before taxes (6,638) 2,075 359 (4,204)
Income tax benefit (641) -0- -0- (641)
Net income (loss) (5,997) 2,075 359 (3,563)(h)
Less: Preferred stock
dividends (674) -0- (1,154)(f) (1,828)
Imputed dividend
on preferred
stock (2,451) -0- (272)(g) (2,723)
-------- -------- -------- --------
Net income (loss)
applicable to common
stock $ (9,122) $ 2,075 $ 1,067 $ (8,114)
========== ======= ======== ========
Net loss per common
share $ (.44) $ (.38)
========== =========
Weighted-average
shares outstanding 20,500 21,600
========= ========
See accompanying notes to the unaudited pro forma combined statement of
operations.
NOTES TO THE UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
- ------------------------------------------------------------------
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 finanical statements of the Company
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) Concurrent with the acquisition of Sun World by the Company, Sun
World entered into new financing arrangements with its primary
secured lenders which provided for, among other things, reduced
interest rates. Additionally, the Company paid $5.5 million toward
the Sun World outstanding debt obligations. Interest expense based
on the pro forma capitalization of the Company is summarized in the
table below ($ in thousands):
John Hancock Credit Agreement (1).......................$ 7,152
Credit Agricole Credit Agreement (2).................... 3,737
Other secured debt (3).................................. 365
---------
Total interest expense.................................. 11,254
Less historical interest on debt ....................... (11,908)
---------
Decrease in interest expense............................$ (654)
========
-------------------
(1) Based upon a fixed interest rate of 10.60%
(2) Assumes an interst rate of 9.0%. A change of
0.125% in the interst rate would change interest
expense by $58,394 for the nine months ended
December 31, 1996.
(3) Based upon fixed interest rates ranging from
7.50 to 10.00%.
(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
$.15 for the nine months ended December 31, 1996.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
- ------------------------------------------------------
The Company estimates that expenses in connection with the
distribution described in this Registration Statement will be as
shown below. All expenses incurred with respect to the
distribution will be paid by the Company. See "Plan of
Distribution."
SEC registration fee . . . . . . . . . . . . . . . . . $ 12,512
Printing expenses. . . . . . . . . . . . . . . . . . . 4,000
Accounting fees and expenses . . . . . . . . . . . . . 20,000
Legal fees and expenses. . . . . . . . . . . . . . . . 50,000
Miscellaneous. . . . . . . . . . . . . . . . . . . . . 5,000
Total. . . . . . . . . . . . . . . . . . . . . $ 91,512
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
- -----------------------------------------------------
Section 145 of the Delaware General Corporation Law permits
the Registrant's 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.
The Registrant's Bylaws (Exhibit 3.2 hereto) provide for
mandatory indemnification of directors and officers of the Company,
and those serving at the request of the Company as directors,
officers, employees, or agents of other entities (collectively,
"Agents"), to the maximum extent permitted by law. The Bylaws
provide that such indemnification shall be a contract right between
each Agent and the Company.
In 1990, the Company entered into an Indemnity Agreement with
each of the individuals then serving as an executive officer or
director of the Company, including Keith Brackpool, the current
Chief Executive Officer of the Company. The Indemnity Agreement as
to Mr. Brackpool remains in effect; all of the other executive
officers and directors who executed an Indemnity Agreement with the
Company have since resigned from their positions with the Company.
The Indemnity Agreement provides for the indemnification of the
indemnified party with respect to his activities as a director or
officer of the Company or an affiliate of the Company 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 the Company. Such indemnification is
provided to the maximum extent permitted by the Company's charter
documents, insurance policies and/or any applicable law.
The Subscription Agreements between the Company and the
purchasers (the "Purchasers") of certain of the securities
registered hereunder provide that the Company shall indemnify the
Purchasers under certain circumstances and the Purchasers shall
indemnify the Company and controlling persons of the Company under
certain circumstances, including indemnification for liabilities
arising under the Act. The Warrants registered hereunder also
include similar indemnification provisions.
The Company's Certificate of Incorporation provides that a
director of the Company shall not be personally liable to the
Company or its 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. The Company also has purchased a liability
insurance policy which insures its directors and officers against
certain liabilities, including liabilities under the Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
- --------------------------------------------------
The Company believes that the sales of securities in the
transactions described below were all either exempt from, or not
subject to, the registration requirements of the Act:
Date Title Amount Consideration Purchaser(s)
- ----- -------------- --------- ------------- ---------------------
05/94 Options to 1,430,500 Services Directors, officers
purchase options(1) and employees
Common Stock
02/95 Options to 120,000 Services Employees and
purchase options(1) consultant
Common Stock
03/95 Warrants to 35,000 Extension Rabobank
purchase warrants(1) of credit
Common Stock
03/95 Common Stock 110,000 Extension Ansbacher
shares(2) of credit
03/95 - Common Stock 100,000 Settlement Private investor
04/95 shares(1) of dispute
04/95 Options to 50,000 Services Employee
purchase options(1)
Common Stock
05/95 Options to 50,000 Services Employee
purchase options(1)
Common Stock
07/95 Common Stock 450,000 $1,800,000 Private investors
shares(2)
09/95 Options to 50,000 Services Employee
purchase options(1)
Common Stock
10/95 Common Stock 49,157 Sale of Private investor
& 6/96 shares(2) interest in group
real property
10/95 Common Stock 500,000 $2,050,000 Private investors
shares(2)
12/95 Common Stock 225,000 $1,035,000 Private investors
shares(2)
01/96 Options to 57,500 Services Employee
purchase options(1)
Common Stock
03/96 Common Stock 900,000 $5,175,000 Private investors
shares(2)
07/96 Preferred 760 $7,600,000 Private investors
Stock - shares(2)
Series B
09/96 Options to 1,850,000 Services Directors, officers
purchase options(1) employees and
Common Stock consultants
09/96 Preferred 27,631 $27,631,000 Private investors
Stock - shares(1)
Series A
09/96 Preferred 260 $2,600,000 Private investors
Stock - shares(2)
Series C
09/96 Warrants to 30,000 Modification Rabobank
purchase warrants(1) of credit
Common Stock terms
11/96 Preferred 240 $2,400,000 Private investors
Stock - shares(2)
Series B
11/96 Preferred 40 $400,000 Private investors
Stock - shares(2)
Series C
12/96 Common Stock 63,000 Settlement Two former creditors
shares(1) of claims of Sun World
12/96 Common Stock 10,000 $25,000 - Private investor
shares(1) Exercise of
options
1/97 Options to 50,000 Consulting Consultant
purchase options(1) services
Common Stock
1/97 & Common Stock 100,000 $425,000 - Former employees
2/97 shares(1) Exercise of
options
3/97 Options to 275,000 Services Employees
purchase options(1)
Common Stock
3/97 Common Stock 28,000 $65,000 - Employee
shares(1) Exercise of
options
3/97 Common Stock 30,000 Transfer of Ansbacher
shares(2) loan
("Ansbacher
Loan")
3/97 Warrants to 75,000 Assumption ING Baring (U.S.)
purchase warrants(1) of Ansbacher Capital Corporation
Common Stock Loan
4/97 Common Stock 125,000 Services - Chief Executive Officer
shares(1) Restricted
stock award
_________________________
(1) The Company believes that the transactions in which these
securities were sold were exempt from registration under the
Act by virtue of Section 4(2) thereof as transactions not
involving any public offerings. In each transaction, the number
of investors was limited, the investors
confirmed to the Company their investment intent, the investors
were provided with information about the Company and/or access to
such information, and restrictions were placed on resales of the
securities.
(2) The Company believes that the transactions in which these
securities were sold were not subject to the registration
requirements of the Act by virtue of Rules 901 and 903 of
Regulation S promulgated under the Act. In each transaction, the
offers and sales were made in offshore transactions, without
any directed selling efforts, to investors which certified
that they were not U.S. persons.
ITEM 16. 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 the Company, as
amended(3)
3.2 Amendment to Certificate of Incorporation dated
November 8, 1996(4)
3.3 Bylaws of the Company, as amended to date(5)
4.1 Specimen Form of Stock Certificate for the Company's
registered stock(5)
4.2 Certificate of Designations of 6% Convertible Series A
Preferred Stock(2)
4.3 Certificate of Designations of 6% Convertible Series B
Preferred Stock(6)
4.4 Certificate of Designations of 6% Convertible Series C
Preferred Stock(2)
4.5 Indenture dated as of April 16, 1997 among Sun World as
issuer, the Company 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(15)
5.1 Opinion of Miller & Holguin as to certain corporate law
matters
10.1 1984 Incentive Stock Option Plan(7)
10.2 1988 Nonstatutory Stock Option Plan(8)
10.3 1996 Stock Option Plan(13)
10.4 Stock Purchase and Fee Agreement dated March 22, 1989
between the Company 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 the Company 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 the Company (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 the Company (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 the Company (Farming Note)(9)
10.10 Second Amendment and Supplement to Stock Purchase and
Fee Agreement, dated December 23, 1992 between the
Company and Mark Liggett(10)
10.11 Loan Agreement dated March 15, 1995 between the
Company, CVDC and Ansbacher(11)
10.12 Fourth Loan Modification Agreement dated March 15, 1995
between the Company, CVDC and Rabobank(11)
10.13 Form of Option Agreement dated April 20, 1995 between
the Company 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, the Company and Timothy J. Shaheen(14)
10.21 Form of Employment Agreement dated September 13, 1996
between Sun World, the Company and Stanley E. Speer(14)
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 (included in Exhibit 5.1)
27.1 Financial Data Schedule(1)(4)(14)
______________________________
(1) Previously filed as Exhibit to the Company's Report on Form
10-Q for the quarter ended June 30, 1996
(2) Previously filed as Exhibit to the Company's Report on Form
8-K dated September 13, 1996
(3) Previously filed as Exhibit to the Company's Registration
Statement on Form S-1 (Registration No. 33-75642) declared
effective May 16, 1994
(4) Previously filed as Exhibit to the Company's Report on Form
10-Q for the quarter ended September 30, 1996
(5) Previously filed as Exhibit to the Company's Report on Form
8-K dated May 6, 1992
(6) Previously filed as Exhibit to the Company's Annual Report
on Form 10-K for the fiscal year ended March 31, 1996
(7) Previously filed as Exhibit to the Company's Annual Report
on Form 10-K for the fiscal year ended March 31, 1989
(8) Previously filed as Exhibit to the Company's Annual Report
on Form 10-K for the fiscal year ended March 31, 1988
(9) Previously filed as Exhibit to the Company's Annual Report
on Form 10-K for the fiscal year ended March 31, 1990
(10) Previously filed as Exhibit to the Company's Annual Report
on Form 10-K for the fiscal year ended March 31, 1993
(11) Previously filed as Exhibit to the Company's Annual Report
on Form 10-K for the fiscal year ended March 31, 1995
(12) Previously filed as Exhibit to the Company's Report on Form
10-Q for the quarter ended December 31, 1995
(13) Previously filed as Exhibit A to the Company's Proxy
Statement relating to the Annual Meeting of Stockholders
held on November 8, 1996
(14) Previously filed as Exhibit to the Company's Transition Report
on Form 10-K for the nine months ended December 31, 1996
(15) Previously filed as Exhibit to Amendment No. 1 to the Company's
Form S-1 Registration Statement No. 333-19109
(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 the
Company:
SCHEDULE PAGE
Schedule I: Condensed Financial Information
of Registrant S-1
Schedule II: Valuation and Qualifying Accounts S-4
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 Company's
Consolidated Financial Statements or the Notes thereto.
ITEM 17. UNDERTAKINGS.
---------------
(a) The undersigned Registrant hereby undertakes:
(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.
(h) Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to directors,
officers and controlling persons of the Registrant pursuant to
the foregoing provisions, or otherwise, the Registrant has 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 Registrant of expenses incurred or
paid by a director, officer or controlling person of the
Registrant 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
Registrant 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. 333-19109 to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Los Angeles, State of California,
on May 7, 1997.
CADIZ LAND COMPANY, INC.
By: /s/ Keith Brackpool
---------------------------------
Keith Brackpool
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933,
this Amendment No. 2 to Registration Statement No. 333-19109 has
been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
- -------------------- --------------------- -----------------------
/S/ Dwight W. Makins Chairman of the Board May 7, 1997
---------------- and Director
Dwight W. Makins
/S/ Keith Brackpool Chief Executive Officer May 7, 1997
--------------- and Director
Keith Brackpool (Principal Executive
Officer)
/S/ J.F.R. Hammond Director May 7, 1997
---------------
J.F.R. Hammond
/S/ Stephen D. Weinress Director May 7, 1997
-------------------
Stephen D. Weinress
/S/ Susan K. Chapman Chief Financial Officer May 7, 1997
---------------- and Secretary
Susan K. Chapman (Principal Financial &
Accounting Officer)
INDEX TO FINANCIAL STATEMENT SCHEDULES
Schedule I: Condensed Financial Information of Registrant.....S-1
Scheudle II: Valuation and Qualify Accounts....................S-4
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 5.1
-----------
May 7, 1997
Cadiz Land Company, Inc.
10535 Foothill Blvd., Suite 150
Rancho Cucamonga, CA 91730
Re: Registration Statement No. 333-19109 on Form S-1 (the "Registration
Statement")
Ladies and Gentlemen:
Our opinion has been requested in connection with the
Registration Statement filed by Cadiz Land Company, Inc., a
Delaware corporation (the "Company"), with the Securities and
Exchange Commission relating to the offer and sale by certain
security holders of the Company named therein (the "Selling
Security Holders") of a total of 8,777,368 shares (the "Shares") of
Common Stock of the Company, consisting of 677,902 Placement
Shares, 7,368,249 Conversion Shares, 366,217 Dividend Shares,
50,000 Option Shares and 315,000 Warrant Shares, and 315,000
Warrants (as such terms are defined in the Registration Statement).
We have examined such corporate records and other documents and
have made such examinations of law as we have deemed relevant.
Based on and subject to the above, it is our opinion that the
Placement Shares, the Conversion Shares, the Dividend Shares,
and the Options and the Warrants are duly authorized, legally
issued, fully paid and non-assessable, and that the Option Shares
and the Warrant Shares when issued as contemplated under the terms
of the agreements and instruments governing their issuance, will
be duly authorized, legally issued, fully paid and non-assessable.
We hereby consent to the use of this opinion as an Exhibit to the
Registration Statement. This opinion supersedes and replaces our
previous opinion dated April 29, 1997.
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
Registration Statement on Form S-1 (No. 333-19109) of our report dated
March 7, 1997, except for Note 7, which is as of March 31, 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 16(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 report dated November 22, 1996, relating to the financial statements of
Sun World International, Inc., which appears 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
May 6, 1997
EXHIBIT 23.2
------------
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 2 to Registration
Statement No. 333-19109 of Cadiz Land Company, Inc. 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
Fresno, California
May 6, 1997
