SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
MARK ONE [1]
[ ] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended ....
OR
[ X] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE
REQUIRED]
For the transition period from April 1, 1996 to December 31, 1996
- -----------------------------------------------------------------
Commission File Number 0-12114
CADIZ LAND COMPANY, INC.
(Exact name of registrant specified in its charter)
DELAWARE 77-0313235
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10535 Foothill Boulevard, Suite 150
Rancho Cucamonga, California 91730
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (909) 980-2738
Securities registered pursuant to Section 12(b) of the Act: None
Title of each class Name of each exchange on which registered
------------------- ----------------------------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of regulation S-K (Section 220.405 of this chapter) is not contained
herein, and will not be contained to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to this Form 10-K.
-----
As of April 4, 1997, the registrant had 24,163,300 shares of Common Stock
outstanding. The aggregate market value of the Common Stock held by
nonaffiliates as of April 4, 1997, was approximately $119,191,000 based on
the average of the closing bid and asked prices on that date.
Documents Incorporated by Reference
NONE
PART I
ITEM 1. 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.
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.
(a) 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 its 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 Item 2, "Properties."
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. ("PAH") stock held at the
time of the reincorporation.
(b) 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 Item 7,
"Management's Discussion and Analysis".
(c) 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,
plums, peaches, nectarines, apricots and lemons. It is also
one of California's largest independent marketers of grapefruit,
tangerines, mandarins, and dates.
The breadth and diversity of the product line helps to
minimize the impact of individual crop earnings fluctuations.
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 table grapes,
Black Diamond plums, Sun World Seedless watermelons, Star
Sweet super red grapefruit, Honeycot apricots, Amber Crest
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 Item 2,
"Properties."
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.
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 Item 2, "Properties."
Sun World's vertically integrated operations enable it to
offer the market a continuous stream of new, specialty
products which receive a market premium coupled with a large
basket of other produce staples. As a significant grower, Sun
World is able to manage the quality of its own product line,
and as a significant packer/marketer, Sun World works with
other growers to ensure product quality through packing and
distribution. 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 plum, the Amber Crest peach and the Honeycot 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 independent experts to be in the range of 20,000 to 30,000 acre-feet.
See Item 2, "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. Additionally, independent
geotechnical and engineering studies confirm that the Company's Cadiz
Valley properties are well suited for temporary storage of water which
could be imported from the Colorado River during periods of excess supply.
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 process 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. Hydrological studies
and testing of a full scale production well have demonstrated that this
landholding is underlain by groundwater of excellent quality. Average
annual recharge is estimated by independent experts to be in the range
of 10,000 to 20,000 acre-feet. See Item 2, "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, the Company has, therefore, historically incurred a
loss with respect to its agricultural operations in the first
and fourth calendar quarters.
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.
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.
ITEM 2. PROPERTIES
The Company currently leases its executive offices in Rancho
Cucamonga, California; however, it expects to relocate these offices
to Los Angeles County within the next several months. 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 Item 1,
"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
or through its wholly-owned subsidiary, Cadiz Valley
Development Corporation ("CVDC").
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 in favor of Sun World's two primary lenders as
security for loans with outstanding balances aggregating
approximately $130 million as of December 31, 1996. See Item
7, "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 Item 1, "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 two primary
lenders as security for loans with outstanding balances
aggregating approximately $18.5 million as of December 31,
1996. See Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and
Capital Resources - Current Financing Arrangements."
ITEM 3. 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.
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.
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The results of the Company's Annual Meeting of
Stockholders held November 8, 1996 were reported in the
Company's Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 1996.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's common stock is traded on the Nasdaq
National Stock Market under the symbol "CLCI". Since July
1994, the Company's common stock has been traded as a National
Market System security. The following table reflects, for
periods up until the period ended June 30, 1994, inter-dealer
quotations, without retail markup, markdown or commission, and
may not necessarily represent actual transactions. For the
periods ended September 30, 1994 and thereafter, the table
reflects actual sales transactions. The high and low range of
the common stock and bid prices, where applicable, for the
dates indicated have been provided by Nasdaq.
Quarter Ended Bid Prices Asked Prices
-------------- ----------- ------------
High Low High Low
---- ---- ---- ---
1994:
March 31 $ 6.125 $ 4.375 $ 6.500 $ 4.625
June 30 $ 6.000 $ 3.750 $ 6.250 $ 4.125
High Low
Sales Price Sales Price
----------- ------------
September 30 $ 5.250 $ 3.75
December 31 $ 5.250 $ 4.25
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 April 10, 1997, the high, low and last sales prices for
the shares, as reported by Nasdaq, were $5.25, $5.1563, and
$5.1563, 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 27,431 shares remain outstanding; (ii) up to 1,000 shares
of Series B Preferred, of which 1,000 shares have been issued
and 80 shares remain outstanding; and (iii) up to 365 shares
of Series C Preferred, of which 300 shares have been issued
and no shares remain outstanding. The Board of Directors has
no present plans or arrangements for the issuance of
additional shares of 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 March 31, 1997, was 254.
To date, the Company has never paid a cash dividend on
Common Stock. The Company's ability to pay such dividends is
currently restricted by agreements with the Company's lenders;
however, upon completion of the Company's proposed refinancing
of the debt of Sun World ( See Item 7. "Management's
Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources," below), such
current restrictions would be replaced by a series of new
covenants which would 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
stockholders. See Item 1, "Business - Narrative Description
of Business - Water Resource Development."
ITEM 6. SELECTED FINANCIAL DATA
The following selected 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 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 Item
7, "Management's Discussion and Analysis".
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
discounted
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 equivalent 20,500 17,700 16,500 12,800 8,700
========= ======== ======== ======== ========
Nine Months
Ended
December 31, Year Ended 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.
ITEM 7. 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 context so requires, with respect to
those operations and activities of Cadiz 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 tend 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 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 during the fiscal year end 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 Item 1, "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 Item 3, "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 the Cadiz'
resource development as a result of the Cadiz' entering into
joint venture or leasing arrangements with third party growers
for the farming of crops on its properties. A combination of
gross crop proceeds from the citrus orchard and both rent and
percentage of gross crop proceeds from the vineyard totaled
$0.6 million and $0.5 million for the years ended March 31,
1996 and 1995, respectively. Gross crop proceeds from the
additional acreage developed to row crops in the latter part
of fiscal year 1995 totaled $0.8 million for the year end
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, with the development of 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 11, 1997 Sun World entered into an agreement
with a major New York investment banking firm whereby the
firm, as initial purchaser, agreed to purchase, effective April 16,
1997, $115.0 million in secured notes (the "Sun World Notes").
The Sun World Notes, which will mature on April 15, 2004, will accrue
interest at the rate of 11-1/4% per annum and interest only will be
payable semi-annually on April 15 and October 15 of each year,
commencing October 15, 1997. 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 to be entered into by Sun World concurrently with the
issuance of the Sun World Notes, will be 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") (collectively,
the "Sun World Lenders"), as well as Cadiz' existing indebtedness to
Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A.
("Rabobank"). The Sun World Notes will be secured by a first
lien on substantially all of the assets of Sun World and its
subsidiaries, other than the growing crops, crop inventories,
accounts receivable and proceeds thereof which will secure the
Revolving Credit Facility. The Sun World Notes will also be
secured by the guarantee of Cadiz.
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. Under its current debt structure, Sun
World's cash balance is 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 is to be used upon issuance of the Sun
World Notes to fund debt repayments. Therefore, following
the issuance of the Sun World Notes, Sun World will depend upon
the Revolving Credit Facility to meet its seasonal working capital
needs in 1997.
After giving effect to the issuance of the Sun World
Notes and the application of the net proceeds therefrom,
Sun World will have $120.0 million of indebtedness outstanding
and $30.0 million of borrowing availability under the
Revolving Credit Facility. Cadiz will have 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 will be more favorable to the Company.
CURRENT FINANCING ARRANGEMENTS.
SUN WORLD OBLIGATIONS
As of December 31, 1996, Sun World's obligations to John
Hancock and Credit Agricole totaled approximately $130.4
million and mature in September 2006. The obligations to John
Hancock is due in variable installments with interest at
10.6%. The obligation to Credit Agricole bears interest at a
variable rate based upon prime or LIBOR with interest payable
monthly and principal due in variable installments.
Substantially all of the assets of Sun World are encumbered in
favor of one or both of the Sun World lenders. Sun World'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. Upon issuance of the Sun World
Notes, the obligations of Sun World to John Hancock and
Credit Agricole will be repaid in full.
CADIZ OBLIGATIONS
Cadiz' two primary current lenders are Rabobank and 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. As Cadiz intends to keep the ING facility in
place following the issuance of the Sun World Notes, 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 May 1, 1997 at an exercise price equal to the
market price of Cadiz common stock at the time such warrants
become exercisable. 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.
The Rabobank facility of approximately $9.1 million
matures April 30, 1997. Rabobank has granted to the Company
the right to obtain two one-year extensions of this maturity
date, provided the total debt outstanding to Rabobank at the
time the first extension becomes effective does not exceed
$8.5 million. Upon exercise of the first and second
extension, Cadiz would be required to pay Rabobank certain
fees. The interest rate in effect during each extension period
would be at Rabobank's cost of funds plus 1-1/4% with this
interest rate given retroactive effect to February 1, 1997.
Upon issuance of the Sun World Notes, the Rabobank facility will
be repaid in full, and such extensions will not be required.
Currently, ING and Rabobank hold senior and subordinated
deeds of trust, respectively, 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 $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 has delivered
notice of exercise of this conversion right, effective May 7,
1997 to all holders of Series A Preferred. 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 March 31, 1997, 100 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 activitie 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 carryforward.
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 21, 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.
Concurrently with the Sun World Acquisition, Cadiz
entered into agreements with both of its existing lenders and
with Sun World's principal secured lenders which restrict the
amount of cash that can flow from Cadiz to Sun World and vice
versa.
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 Note 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.
Annual maturities of long-term debt outstanding excluding
$124,000 representing the unamortized portion of warrants at
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, and 2002 and thereafter - $92,676,000. With the
issuance of the Sun World Notes, annual maturities of long-term
debt outstanding will be 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.
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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is submitted in
response to Part IV hereof. See the Index to Consolidated
Financial Statements.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not Applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information called for by this item is incorporated
herein by reference to the definitive proxy statement involving
the election of directors which the Company intends to file with
the Commission pursuant to Regulation 14A under the Securities
and Exchange Act of 1934 not later than 120 days after December
31, 1996.
ITEM 11. EXECUTIVE COMPENSATION
The information called for by this item is incorporated
herein by reference to the definitive proxy statement involving
the election of directors which the Company intends to file with
the Commission pursuant to Regulation 14A under the Securities
Exchange Act of 1934 not later than 120 days after December 31,
1996.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information called for by this item is incorporated
herein by reference to the definitive proxy statement involving
the election of directors which the Company intends to file with
the Commission pursuant to Regulation 14A under the Securities
Exchange Act of 1934 not later than 120 days after December 31,
1996.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by this item is incorporated
herein by reference to the definitive proxy statement involving
the election of directors which the Company intends to file with
the Commission pursuant to Regulation 14A under the Securities
Exchange Act of 1934 not later than 120 days after December 31,
1996.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) 1. FINANCIAL STATEMENTS. See Index to Consolidated
Financial Statements.
2. FINANCIAL STATEMENT SCHEDULES. See Index to
Consolidated Financial Statements.
3. EXHIBITS.
The following exhibits are filed or incorporated by reference
as part of this Transition Report:
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)
10.1 The Company's 1984 Incentive Stock Option Plan(7)
10.2 Pacific Agricultural Holdings, Inc. 1988
Nonstatutory Stock Option Plan(8)
10.3 The Company's 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.
10.21 Form of Employment Agreement dated September 13,
1996 between Sun World, the Company and Stanley E.
Speer
21.1 Subsidiaries of the Registrant
23.1 Consent of Independent Accountants (included in Part
IV of the Form 10-K).
27.1 Financial Data Schedule
- -------------------
(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
(b) REPORTS ON FORM 8-K
1. Report on Form 8-K/A (Amendment No. 1 to Report
on Form 8-K dated September 13, 1996) providing
(i) audited consolidated financial statements of
Sun World International, Inc. and Subsidiaries
for the years ended December 31, 1995 and 1994;
(ii) audited consolidated financial statements of
Sun World International, Inc. and subsidiaries
for the interim period January 1, 1996 through
September 13, 1996 (the date of acquisition); and
(iii) Cadiz Land Company, Inc. and Sun World
International, Inc. unaudited Pro Forma Combined
Financial Statements; and to report the sale of
equity securities pursuant to Regulation S.
2. Report on Form 8-K dated December 20, 1996,
reporting the change of the Company's fiscal year
end from March 31 to December 31.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereto duly authorized.
CADIZ LAND COMPANY, INC.
By: /s/ Keith Brackpool By: /s/ Susan K. Chapman
----------------------------- ----------------------
Keith Brackpool, Susan K. Chapman,
Chief Executive Officer Chief Financial Officer
and Director and Secretary
Date: April 14, 1997 Date: April 14, 1997
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed by the following persons in
the capacities and on the dates indicated.
Name and Position Date
/s/ Dwight Makins Date: April 14, 1997
------------------------
Dwight Makins,
Chairman of the Board
and Director
/s/ Keith Brackpool Date: April 14, 1997
-------------------------
Keith Brackpool,
Chief Executive Officer
and Director
(Principal Executive Officer)
/s/ Susan K. Chapman Date: April 14, 1997
--------------------------
Susan K. Chapman,
Chief Financial Officer
and Secretary (Principal Financial
and Accounting Officer)
/s/ J.F.R. Hammond Date: April 14, 1997
---------------------------
J.F.R. Hammond, Director
/s/ Stephen D. Weinress Date: April 14, 1997
-----------------------------
Stephen D. Weinress, Director
CADIZ LAND COMPANY, INC.
Index to Consolidated Financial Statements
Pages
FINANCIAL STATEMENTS:
Report of Independent Accountants. . . . . . . . . 35
Consolidated Balance Sheet at December 31, 1996
and March 31, 1996 . . . . . . . . . . . . . . . 36-37
Consolidated Statement of Cash Flows for the
nine months ended December 31, 1996 and for
the two years ended March 31, 1996. . . . . . . .38
Consolidated Statement of Operations for the
nine months ended December 31, 1996 and for
the two years ended March 31, 1996. . . . . . . .39
Consolidated Statement of Redeemable Preferred
Stock, Preferred Stock, Common Stock and
Other Stockholders' Equity for the nine months
ended December 31, 1996 and for the two years
ended March 31, 1996. . . . . . . . . . . . . . . 40-41
Notes to the Consolidated Financial Statements . . 42-62
FINANCIAL STATEMENT SCHEDULES:
Schedule I - Condensed Financial Information
of Registrant for the nine months ended
December 31, 1996 . . . . . . . . . . . . . . . . 63-65
Schedule II - Valuation and Qualifying
Accounts for the nine months ended
December 31, 1996 and for the two years
ended March 31, 1996. . . . . . . . . . . . . . .66
(Schedules other than those listed above have been omitted
since they are either not required, inapplicable, or the
required information is included on the financial statements
or notes thereto.)
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of
Cadiz Land Company, Inc.
In our opinion, the consolidated financial statements listed in
the accompanying index 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 $1,919,000
during the nine months ended December 31, 1996 and the year
ended March 31, 1996, respectively, in connection with this
matter.
In the normal course of its agricultural operations,
the Company handles, stores, transports and dispenses
products identified as hazardous materials. Regulatory
agencies periodically conduct inspections and, currently,
there are no pending claims with respect to hazardous
materials.
The Company is involved in other legal and
administrative proceedings and claims. In the opinion of
management, the ultimate outcome of each proceeding or all
such proceedings combined will not have a material adverse
impact on the Company's financial statements.
* * *
SCHEDULE I - CONDENSED FINANCIAL INFORMATION of REGISTRANT
Consolidated Balance Sheet
December 31, 1996
($ 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
======== ======= ======= ======= =======
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the
Registration Statement on Form S-8 (Nos. 33-73936, 33-83360,
33-63065 and 33-63667) of Cadiz Land Company, Inc. of our
report dated March 7, 1997, except for Note 7, which is as of
March 31, 1997, appearing on page 35 of this Form 10-K.
/s/ Price Waterhouse LLP
- -------------------------
Price Waterhouse LLP
Los Angeles, California
April 11, 1997
EXHIBIT 10.20
------------
EMPLOYMENT AGREEMENT
---------------------
THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into as
of September 13, 1996, by and between Sun World International, Inc.,
a Delaware corporation (the "Company"), Cadiz Land Company, Inc.
("Cadiz") and Timothy J. Shaheen, an individual ("Shaheen").
WHEREAS, the Company is a wholly-owned subsidiary of Cadiz; and
WHEREAS, the Company wishes to employ Shaheen and Shaheen wishes
to accept such employment on the terms and conditions set forth
herein;
NOW, THEREFORE, the parties agree as follows:
1. TERM OF EMPLOYMENT. The Company hereby employs Shaheen and
Shaheen accepts such employment for a term commencing as of September
13, 1996 (the "Commencement Date"), and terminating as provided in
Section 6 below (the "Term").
2. DUTIES. Shaheen shall be employed as the Chief Executive
Officer of the Company. Shaheen's base of operations shall be at the
new corporate headquarters office of the Company (to be located in Los
Angeles County at a site to be determined by the Company), unless
changed by mutual agreement. However, Shaheen shall also render
services at the sites of the Company's operating divisions (currently
based in Bakersfield and Coachella, California) as necessary to
properly perform his duties. Shaheen's duties and responsibilities
shall relate, generally, to the operational management of the Company.
Shaheen shall report to, and take direction from, the Chairman of the
Company. Shaheen shall also perform such other duties pertaining to
the operations of the Company as the Board of Directors of the Company
(the "Board") may from time to time direct. Shaheen shall attend all
quarterly meetings of the Board. Shaheen hereby consents to serve in
further capacities as an officer and/or director of the Company or any
subsidiary or affiliate without any additional salary or compensation.
3. NECESSARY SERVICES.
a. PERFORMANCE OF DUTIES. Shaheen agrees that he will at
all times faithfully, industriously and to the best of his ability,
experience and talents, perform to the reasonable satisfaction of the
Company all of the duties that may be assigned to him hereunder and
shall devote such time to the performance of these duties as may be
necessary therefor.
b. FULL-TIME SERVICE. During the term of the Agreement,
Shaheen shall be available on a full-time basis to perform the duties
assigned him in accordance with paragraph 2 hereof; provided, however,
that nothing herein shall preclude Shaheen from spending a reasonable
amount of time in the management of his personal investments or with
any charitable or civic venture with which Shaheen may be involved as
of the date hereof; and provided, further, that such involvement shall
not detract from the performance of Shaheen's duties hereunder.
c. EXCLUSIVE SERVICES. Shaheen agrees that during the
period of his employment, Shaheen shall provide services exclusively
pursuant to this Agreement, and Shaheen will not, without the prior
written consent of the Company (which consent may be granted or
withheld in the sole and absolute discretion of the Company), directly
or indirectly:
(i) engage in the business of, or own or control any
interest in (except as a passive investor owning less than 10% of the
equity securities of a publicly held company), or act as director,
officer of employee of, or consultant to, any individual, partnership,
joint venture, corporation or other business entity, directly or
indirectly engaged anywhere in the United States, its possessions or
territories, in any business competitive with the business then being
carried on by the Company or any affiliate;
(ii) plan or organize any business activity
competitive with the business or planned business of the Company or
its affiliates, or combine, participate, or conspire with other
employees of the Company or its affiliates or other persons or
entities for the purpose of organizing any such competitive business
activity; or
(iii) divert or take away, or attempt to divert or
take away, any of the customers or potential customers of the Company
or its affiliates, either for himself or for any other person, firm,
partnership, corporation or other business entity.
4. BASIC COMPENSATION. Subject to such deductions as the
Company may from time to time be required to make pursuant to law,
governmental regulation or order, the Company agrees to pay to Shaheen
an initial base salary of $250,000 per annum, commencing as of the
Commencement Date. Payments shall be made in accordance with the
normal payroll practices of the Company. Such base salary will be
subject to annual adjustment by the Compensation Committee of the
Board, in its sole and absolute discretion.
Shaheen agrees to accept the foregoing, along with any other
compensation to which Shaheen may be entitled under Section 5 below,
as payment in full for all services rendered by him to or for the
benefit of the Company.
5. OTHER COMPENSATION.
a. STOCK OPTIONS. Concurrently with the execution hereof,
Cadiz shall grant to Shaheen, for a period of five (5) years from the
date hereof (the "Option Date"), the right and option to purchase
400,000 theretofore authorized but unissued common shares of Cadiz at
the price of $4.50 per share, which represents the market value of
Cadiz's common stock upon the Option Date. The options so granted
(the "Options") shall be issued under the Cadiz 1996 Stock Option Plan
(the "Plan") and shall be subject to vesting, if at all, as follows:
(i) VESTING - SIX MONTHS. 100,000 Options shall vest
and shall be immediately exercisable by Shaheen six months following
the Commencement Date.
(ii) VESTING - ONE YEAR. 100,000 Options shall vest,
if at all, and shall be immediately exercisable by Shaheen, on the
first anniversary of the Commencement Date, provided that Shaheen is
then an employee of the Company.
(iii) CONDITIONAL STOCK OPTIONS - 1996 EARNINGS.
50,000 Options shall vest, if at all, and shall be immediately
exercisable by Shaheen, upon the certification by the independent
outside auditors of the Company that the Company has achieved earnings
before interest, taxes, depreciation and amortization (before
extraordinary professional fees relating to the reorganization of the
Company and before any extraordinary gains from asset sales) (the
"EBITDA Amount") for the year ended December 31, 1996 of $20,530,000
or more (prior to the payment of any management fees by the Company
to Cadiz). In the event of a change in the fiscal year end of the
Company, suitable pro-rata adjustments shall be made to the foregoing
EBITDA Amount.
(iv) CONDITIONAL STOCK OPTIONS - 1997 EARNINGS.
50,000 Options shall vest, if at all, and shall be immediately
exercisable by Shaheen, upon the certification by the independent
outside auditors of the Company that the Company has achieved an
EBITDA Amount for the year ended December 31, 1997 in an amount to be
established by the agreement of Shaheen and the Chairman of the
Company prior to the commencement of such year.
(v) CONDITIONAL STOCK OPTIONS - BOARD DISCRETION.
100,000 Options shall vest, if at all, and shall be immediately
exercisable by Shaheen, at the discretion of the Board of Directors
of Cadiz, based upon the Board's good faith evaluation of the
performance of the Company under Shaheen.
(vi) ADDITIONAL CONDITIONS TO OPTIONS.
Nothwithstanding anything to the contrary herein, no Option shall be
exercisable until such date as the stockholders of Cadiz have approved
the Plan and have approved an increase in the authorized capital stock
of Cadiz in an amount sufficient to permit exercise of the Options.
It shall be a further condition to the grant and vesting of any
options described in this paragraph 5(a) that (a) concurrently with
the grant of such options, Shaheen shall provide to Cadiz such written
documentation, including representations and warranties, as Cadiz may
require in order to establish compliance with any applicable state or
federal securities laws, and (b) at the time of vesting, Shaheen shall
be an active employee of the Company. It shall also be a condition
to the grant and vesting of any options described in subsections
5(a)(iii) and 5(a)(iv) that Shaheen be an employee of the Company at
the end of the fiscal year to which such options relate.
b. CASH BONUSES.
(i) MANDATORY BONUSES. Shaheen will be entitled to
receive a Supplemental Bonus during the first two years of Shaheen's
employment as follows:
(a) YEAR ENDED DECEMBER 31, 1996. If the
Company achieves 100% of its budgeted EBIDTA Amount for the year
ended December 31, 1996 (i.e. $20,530,000), Shaheen will be paid
a cash bonus equal to 50% of Shaheen's annual base salary (as
determined on an annualized basis for such year, but pro-rated
for the period January 29, 1996 - December 31, 1996). The
amount of this bonus will be subject to increase if the EBIDTA
Amount for the year ended December 31, 1996 is greater than 100%
of budget, up to a maximum of 100% of Shaheen's annual base
salary if the EBITDA Amount is 120% of budget. If the EBITDA
Amount for the year ended December 31, 1996 is greater than 100%
of budget, but lower than 120% of budget, the amount of the
bonus payable shall be calculated on a pro-rata basis. By way
of example only, if the Company achieves 110% of budget, the
cash bonus will equal 75% of Shaheen's annual base salary The
cash bonus will be payable promptly following certification by
the independent outside auditors of the Company of the Company's
EBITDA Amount for the year.
(b) YEAR ENDED DECEMBER 31, 1997. A cash bonus
will be payable to Shaheen for the year ended December 31, 1997
on the basis as described in subparagraph (a) above, except that
the Company's budgeted EBITDA Amount for such year shall be
established by the agreement of Shaheen and the Chairman of the
Company prior to the commencement of such year.
(c) ADDITIONAL CONDITIONS TO BONUSES. It shall
be a further condition to the payment of any bonuses described
in this paragraph 5(b)(i) that Shaheen be an employee of the
Company at the end of the fiscal year to which such bonuses
relate.
(ii) DISCRETIONARY BONUSES. The Company may grant to
Shaheen annual bonuses in further compensation and as special
recognition for his services to the Company. Any such bonuses, which
shall not be mandatory, may be granted in the sole discretion of the
Board of Directors of the Company and at such times and in such manner
as the Board of Directors of the Company may determine.
c. FRINGE BENEFITS. In addition to the compensation set
forth above, Shaheen shall be entitled to the following benefits:
i. Four (4) weeks annual vacation during each of the
first two years of employment, provided that no more than two weeks
are to be taken consecutively;
ii. Sick leave and personal leave with pay in
accordance with the prevailing policies of the Company;
iii. Medical coverage under the group medical insurance
plan of the Company (or COBRA coverage, at the election of Shaheen);
iv. Participation in any pension plan maintained by
the Company for the general benefit of its employees;
v. At Shaheen's option, either (i) the Company shall
pay to Shaheen an automobile allowance of $650 per month, or (ii) the
Company, at its expense, shall furnish to Shaheen a fully equipped
automobile of comparable value for use during the term of this
Agreement; and
vi. Any other benefits not specifically set forth
herein as may be granted by the Company or Cadiz, in its sole and
absolute discretion.
d. DEDUCTION AND REIMBURSEMENT. Shaheen hereby agrees
that the Company may deduct and withhold from the compensation payable
to Shaheen hereunder any amounts of money required to be deducted or
withheld by the Company under the provisions of any and all applicable
local, state or federal statutes or regulations or any amendments
thereto hereafter enacted requiring the withholding or deducting of
compensation. In the event the Company makes any payments or incurs
any charges for Shaheen's account, the Company shall have the right,
and Shaheen hereby authorizes the Company, to deduct from any
compensation payable to Shaheen hereunder any charges so paid or
incurred by the Company, but such right of deduction shall not be
deemed to limit or exclude any other rights of credit or recovery or
any other remedies the Company otherwise may have. Nothing
hereinabove set forth shall be deemed to obligate the Company to make
any such payments or incur any such charges. If it is determined that
such deduction is unauthorized, the Company agrees to reimburse
Shaheen promptly, it being understood, however, that notwithstanding
the determination that any deduction was unauthorized, the making of
such deductions shall not be deemed to be a breach by the Company of
any of its obligations to Shaheen hereunder.
6. TERMINATION.
a. Except as provided in subsection (b) below, this
Agreement shall terminate:
i. At the election of the Company, upon the death or
permanent disability of Shaheen, "permanent disability" being defined
as any continuous loss of one-half (1/2) or more of the time spent by
Shaheen in the usual daily performance of his duties as a result of
physical or mental illness for a continuous period in excess of ninety
(90) days.
ii. At such time, if any, as the Company ceases to
conduct business for any reason whatsoever.
iii. At the election of the Company, upon the breach
by Shaheen of any term or condition of this Agreement or upon the
dismissal of Shaheen by the Company for cause. For purposes of this
Agreement, the Company shall have "cause" to terminate Shaheen's
employment if he (1) engages in one or more acts constituting a
felony; (2) engages in one or more acts involving fraud or serious
moral turpitude; or (3) misappropriates Company assets or engages in
gross misconduct materially injurious to the Company or its affiliates
or subsidiaries.
iv. During the first year of employment hereunder, at
any time upon 180 days' written notice of termination by either party
to the other, and thereafter at any time upon 90 days' written notice
of termination by either party to the other. Such termination may be
with or without cause for any reason whatsoever, whether arbitrary or
not, provided, however, that any amount due under Section 4 hereof
shall be prorated as of the date of termination and the amount so
determined to be due and payable hereunder shall be paid within thirty
(30) days after said date of termination to Shaheen or his estate, as
applicable. The Company shall have no further obligation under this
Agreement to make any payments to, or bestow any benefits upon,
Shaheen after the date of termination; provided, however, that
termination of this Agreement shall not affect the right of Shaheen
to exercise any theretofore vested options granted pursuant to Section
5(a) above.
b. RETURN OF COMPANY'S PROPERTY. If this Agreement is
terminated for any of the foregoing reasons, the Company may, at its
option, require Shaheen to vacate his offices prior to the effective
date of a termination and to cease all activities on the Company's
behalf. Shaheen agrees that on the termination of his employment in
any manner, he will immediately deliver to the Company all notebooks,
brochures, documents, memoranda, reports, price lists, files,
invoices, purchase orders, books, correspondence, customer lists, or
other written or graphical records, and the like, relating to the
business or work of the Company, which are or have been in his
possession or under his control and which have not been returned to
the Company. Shaheen hereby expressly acknowledges that all such
materials referenced above are the property of the Company.
c. PUBLIC IDENTIFICATION. If this Agreement is terminated
pursuant to any provision of this Section 6, Shaheen shall immediately
and forever thereafter cease to hold himself out to any person, firm,
partnership, corporation or other entity as an employee, agent,
independent contractor or representative of the Company or of any
entity owned by, or affiliated with, the Company.
7. EXPENSES. The Company shall reimburse Shaheen for all
out-of-pocket expenses incurred by Shaheen in the performance of his
duties hereunder, including, but not limited to, telephone, travel,
and office expenses, all subject to such written guidelines and/or
requirements for verification as the Company may, in its sole and
absolute discretion, establish.
8. CONFIDENTIALITY AND TRADE SECRETS. For purposes of this
Section 8, the term "Company" shall collectively refer to the Company
and any affiliate thereof.
a. CONFIDENTIAL INFORMATION. Shaheen shall keep in
strictest confidence all information relating to the business,
affairs, customers and suppliers of the Company (collectively
hereinafter referred to as "Trade Secrets"), including, among other
things but without limitation, the Company's cost of performing
services, pricing formulae, methods or procedures, and customer lists,
which Shaheen may acquire during the performance of his services and
duties hereunder and which is not otherwise generally known to the
public. Shaheen acknowledges that such Trade Secrets are of great
value, and have been developed and/or acquired at great expense to the
Company, and the Company would not enter into this contract of
employment and such information would not be made available to Shaheen
in Shaheen's fiduciary capacity unless the Company were assured that
all such information will be used for the exclusive benefit of the
Company. Accordingly, during the term of this Agreement, and at all
times thereafter, Shaheen shall not publish, communicate, divulge,
disclose or use, whether or not for his own benefit, any such
information without the prior written consent of the Company.
Further, Shaheen agrees that during the period of his employment,
Shaheen will not, directly or indirectly, engage in the business of,
or own or control any interest in (except as a passive investor owning
less than 10% of the equity securities of a publicly held company),
or act as a director, officer of employee of, or consultant to, any
individual, partnership, joint venture, corporation or other business
entity, directly or indirectly engaged anywhere in the United States,
its possessions and territories, in any business competitive with the
business then being carried on by the Company; nor will Shaheen engage
in any such activity following the termination of his employment
hereunder (however and by whomever caused and irrespective or whether
or not such termination is for cause), if the loyal and complete
fulfillment by Shaheen of such activities would demand, inherently,
that Shaheen reveal Trade Secrets.
b. CUSTOMER INFORMATION. Shaheen hereby specifically
agrees that he will not utilize any information concerning the
customers of the Company which Shaheen acquires during the term of
this Agreement, whether or not the same originated through Shaheen's
efforts, for any purpose detrimental to the business of the Company.
Without limitation of the foregoing, Shaheen agrees that he shall not
at any time interfere with any existing contracts of the Company, and
further agrees that he shall not engage in business discussions with
any person or entity with whom he or the Company are in negotiations
at the time he ceases to be an employee of the Company until after
such negotiations have been concluded.
c. SOLICITATION OF EMPLOYEES. Shaheen acknowledges that
important factors in the Company's business and operations are the
loyalty and good will of its employees and its customers.
Accordingly, Shaheen agrees that both during the term of this
Agreement and after the expiration or termination of this Agreement
he will not enter into, and will not participate in, any plan or
arrangement to cause any of the Company's employees to terminate his
employment with the Company or hire any of such employees in
connection with business initiated by Shaheen or any other person,
firm or corporation. Shaheen further agrees that information as to
the capabilities of the Company's employees, their salaries and
benefits, and the other terms of their employment is confidential and
proprietary to the Company and constitutes its valuable trade secrets.
d. ONGOING OBLIGATION. The provisions in this Section 8
shall be binding during Shaheen's employment and at all times
thereafter, regardless of the circumstances or reasons for termination
of this Agreement. In the event the provisions in this Section 8 are
more restrictive than permitted by the laws of the jurisdiction in
which enforcement of this provision is sought, such provisions shall
be interpreted to extend only over the maximum period of time, range
of activities or geographic area as to which it may be enforceable.
9. REMEDY FOR BREACH. Shaheen acknowledges that the services
to be rendered by him hereunder are of a special, unique and
extraordinary character, which gives this Agreement a peculiar value
to the Company, the loss of which cannot be reasonably or adequately
compensated in damages in an action at law, and a breach by Shaheen
of the provisions of this Agreement will cause the Company irreparable
injury. It is, therefore, expressly acknowledged that this Agreement
may be enforced by injunction and other equitable remedies, without
bond. Such relief shall not be exclusive, but shall be in addition
to any other rights or remedies Company may have for such breach, and
Company shall be entitled to recover all costs and expenses, including
reasonably attorneys' fees, incurred by reason of any breach of the
covenants of this Agreement.
10. LITIGATION AND ATTORNEYS FEES. In the event of any
litigation between the parties hereto in connection with this
Agreement or to enforce any provision or right hereunder, the
unsuccessful party to such litigation shall pay to the successful
party therein all costs and expenses, including but not limited to
reasonable attorneys' fees incurred therein by such successful party,
which costs, expenses and attorneys' fees shall be included as a part
of any judgment rendered in such action in addition to any other
relief to which the successful party may be entitled.
11. GENERAL PROVISIONS.
a. The failure of the Company at any time to enforce
performance by Shaheen of any provisions of this Agreement shall in
no way affect the Company's rights thereafter to enforce the same, nor
shall the waiver by the Company of any breach of any provision hereof
be held to be a waiver of any other breach of the same or any other
provision.
b. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and the successors and assigns of the
Company; provided, however, it is understood and agreed that the
services to be rendered and the duties to be performed by Shaheen
hereunder are of a special, unique and personal nature and that it
would be difficult or impossible to replace such services; by reason
thereof, Shaheen may not assign either the benefits or the obligations
of this Agreement.
c. Shaheen shall be considered an employee of the Company
within the meaning of all federal, state and local laws and
regulations governing unemployment insurance, workers' compensation,
industrial accident, labor and taxes.
d. This Agreement is the entire agreement between the
parties hereto with respect to the subject matter hereof and
supersedes all prior oral and written agreements and negotiations
between the parties.
e. The headings of the several paragraphs in this
Agreement are inserted solely for the convenience of the parties and
are not a part of and are not intended to govern, limit or aid in the
construction of any term or provision hereof.
f. This Agreement may not be modified except by a written
instrument signed by all parties hereto.
g. All clauses and covenants contained in this Agreement
are severable, and in the event any of them shall be held to be
invalid by any court, such clauses or covenants shall be limited as
permitted under applicable law, or, if the same are not susceptible
to such limitation, this Agreement shall be interpreted as if such
invalid clauses or covenants were not contained herein.
h. This Agreement is made with reference to the laws of
the State of California and shall be governed by and construed in
accordance therewith. Any litigation concerning or to enforce the
provisions of this Agreement shall be brought in the courts of the
State of California.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
SHAHEEN:
/s/ Timothy J. Shaheen
-----------------------
Timothy J. Shaheen
THE COMPANY
Sun World International, Inc.
By: /s/ Keith Brackpool
-------------------------
Keith Brackpool, Chairman
CADIZ
Cadiz Land Company, Inc.
By: /s/ Dwight Makins
-----------------------
Dwight Makins, Chairman
By: /s/ Keith Brackpool
----------------------------
Keith Brackpool, Chief Executive Officer
EXHIBIT 10.21
--------------
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into as
of September 13, 1996, by and between Sun World International, Inc.,
a Delaware corporation (the "Company"), Cadiz Land Company, Inc.
("Cadiz") and Stanley E. Speer, an individual ("Speer").
WHEREAS, the Company is a wholly-owned subsidiary of Cadiz; and
WHEREAS, the Company wishes to employ Speer and Speer wishes to
accept such employment on the terms and conditions set forth herein;
NOW, THEREFORE, the parties agree as follows:
1. TERM OF EMPLOYMENT.
-------------------
The Company hereby employs Speer and Speer accepts such
employment for a term commencing as of September 13, 1996 (the
"Commencement Date"), and terminating as provided in Section 6 below
(the "Term").
2. DUTIES.
------
Speer shall be employed as the Senior Vice-President, Chief
Financial Officer and Secretary of the Company. Speer's base of
operations shall be at the new corporate headquarters office of the
Company (to be located in Los Angeles County at a site to be
determined by the Company), unless changed by mutual agreement.
However, Speer shall also render services at the sites of the
Company's operating divisions (currently based in Bakersfield and
Coachella, California) as necessary to properly perform his duties.
Speer's duties and responsibilities shall relate, generally, to all
financial and administrative areas of the Company including finance,
treasury, human resources, management information systems and the
legal department. Speer shall report to, and take direction from, the
Chief Executive Officer of the Company. Speer shall also perform such
other duties pertaining to the operations of the Company as the Board
of Directors of the Company (the "Board") may from time to time
direct. Speer shall attend all quarterly meetings of the Board.
Speer hereby consents to serve in further capacities as an officer
and/or director of the Company or any subsidiary or affiliate without
any additional salary or compensation.
3. NECESSARY SERVICES.
-------------------
a. PERFORMANCE OF DUTIES. Speer agrees that he will at
all times faithfully, industriously and to the best of his ability,
experience and talents, perform to the reasonable satisfaction of the
Company all of the duties that may be assigned to him hereunder and
shall devote such time to the performance of these duties as may be
necessary therefor.
b. FULL-TIME SERVICE. During the term of the Agreement,
Speer shall be available on a full-time basis to perform the duties
assigned him in accordance with paragraph 2 hereof; provided, however,
that nothing herein shall preclude Speer from spending a reasonable
amount of time in the management of his personal investments or with
any charitable or civic venture with which Speer may be involved as
of the date hereof; and provided, further, that such involvement shall
not detract from the performance of Speer's duties hereunder.
c. EXCLUSIVE SERVICES. Speer agrees that during the
period of his employment, Speer shall provide services exclusively
pursuant to this Agreement, and Speer will not, without the prior
written consent of the Company (which consent may be granted or
withheld in the sole and absolute discretion of the Company), directly
or indirectly:
(i) engage in the business of, or own or control any
interest in (except as a passive investor owning less than 10% of the
equity securities of a publicly held company), or act as director,
officer of employee of, or consultant to, any individual, partnership,
joint venture, corporation or other business entity, directly or
indirectly engaged anywhere in the United States, its possessions or
territories, in any business competitive with the business then being
carried on by the Company or any affiliate;
(ii) plan or organize any business activity
competitive with the business or planned business of the Company or
its affiliates, or combine, participate, or conspire with other
employees of the Company or its affiliates or other persons or
entities for the purpose of organizing any such competitive business
activity; or
(iii) divert or take away, or attempt to divert or
take away, any of the customers or potential customers of the Company
or its affiliates, either for himself or for any other person, firm,
partnership, corporation or other business entity.
4. BASIC COMPENSATION.
------------------
Subject to such deductions as the Company may from time to
time be required to make pursuant to law, governmental regulation or
order, the Company agrees to pay to Speer an initial base salary of
$225,000 per annum, commencing as of the Commencement Date. Payments
shall be made in accordance with the normal payroll practices of the
Company. Such base salary will be subject to annual adjustment by the
Compensation Committee of the Board, in its sole and absolute
discretion.
Speer agrees to accept the foregoing, along with any other
compensation to which Speer may be entitled under Section 5 below, as
payment in full for all services rendered by him to or for the benefit
of the Company.
5. OTHER COMPENSATION.
--------------------
a. STOCK OPTIONS. Concurrently with the execution hereof,
Cadiz shall grant to Speer, for a period of five (5) years from the
date hereof (the "Option Date"), the right and option to purchase
200,000 theretofore authorized but unissued common shares of Cadiz at
the price of $4.50 per share, which represents the market value of
Cadiz's common stock upon the Option Date. The options so granted
(the "Options") shall be issued under the Cadiz 1996 Stock Option Plan
(the "Plan") and shall be subject to vesting, if at all, as follows:
(i) VESTING - SIX MONTHS. 100,000 Options shall vest
and shall be immediately exercisable by Speer six months following the
Commencement Date.
(ii) CONDITIONAL STOCK OPTIONS - 1996 EARNINGS.
25,000 Options shall vest, if at all, and shall be immediately
exercisable by Speer, upon the certification by the independent
outside auditors of the Company that the Company has achieved earnings
before interest, taxes, depreciation and amortization (before
extraordinary professional fees relating to the reorganization of the
Company and before any extraordinary gains from asset sales) (the
"EBITDA Amount") for the year ended December 31, 1996 of $20,530,000
or more (prior to the payment of any management fees by the Company
to Cadiz). In the event of a change in the fiscal year end of the
Company, suitable pro-rata adjustments shall be made to the foregoing
EBITDA Amount.
(iii) CONDITIONAL STOCK OPTIONS - BOARD DISCRETION.
25,000 Options shall vest, if at all, and shall be immediately
exercisable by Speer, at the discretion of the Board of Directors of
Cadiz, based upon the Board's good faith evaluation of Speer's
performance during the first year of Speer's employment hereunder.
(iv) CONDITIONAL STOCK OPTIONS - 1997 EARNINGS.
25,000 Options shall vest, if at all, and shall be immediately
exercisable by Speer, upon the certification by the independent
outside auditors of the Company that the Company has achieved an
EBITDA Amount for the year ended December 31, 1997 in an amount to be
established by the agreement of Speer and the Chairman of the Company
prior to the commencement of such year.
(v) CONDITIONAL STOCK OPTIONS - BOARD DISCRETION.
25,000 Options shall vest, if at all, and shall be immediately
exercisable by Speer, at the discretion of the Board of Directors of
Cadiz, based upon the Board's good faith evaluation of Speer's
performance for the year ended December 31, 1997.
(vi) ADDITIONAL CONDITIONS TO OPTIONS.
Nothwithstanding anything to the contrary herein, no Option shall be
exercisable until such date as the stockholders of Cadiz have approved
the Plan and have approved an increase in the authorized capital stock
of Cadiz in an amount sufficient to permit exercise of the Options.
It shall be a further condition to the grant and vesting of any
options described in this paragraph 5(a) that (a) concurrently with
the grant of such options, Speer shall provide to Cadiz such written
documentation, including representations and warranties, as Cadiz may
require in order to establish compliance with any applicable state or
federal securities laws, and (b) at the time of vesting, Speer shall
be an active employee of the Company. It shall also be a condition
to the grant and vesting of any options described in subsections
5(a)(ii) and 5(a)(iv) that Speer be an employee of the Company at the
end of the fiscal year to which such options relate.
b. CASH BONUSES.
(i) MANDATORY BONUSES. Speer will be entitled to
receive a Supplemental Bonus during the first two years of Speer's
employment as follows:
(a) YEAR ENDED DECEMBER 31, 1996. Speer will be
eligible to receive a cash bonus equal to 50% of Speer's annual
base salary (as determined on an annualized basis for such year,
but pro-rated for the period August 15, 1996 - December 31,
1996) (the "1996 Bonus Base Salary"), as follows. If the
Company achieves 100% of its budgeted EBIDTA Amount for the year
ended December 31, 1996 (i.e. $20,530,000), Speer will be paid
a cash bonus equal to 25% of Speer's 1996 Bonus Base Salary.
Speer will also be eligible for a cash bonus, in an amount not
to exceed 25% of Speer's 1996 Bonus Base Salary, at the
discretion of the Board of Directors of the Company, based upon
the Board's good faith evaluation of Speer's performance during
the year ended December 31, 1996. The cash bonus described in
this paragraph will be payable promptly following certification
by the independent outside auditors of the Company of the
Company's EBITDA Amount for the year.
(b) YEAR ENDED DECEMBER 31, 1997. Speer will be
eligible to receive a cash bonus equal to 50% of Speer's annual
base salary (as determined on an annualized basis for such year)
(the "1997 Bonus Base Salary"), as follows. A cash bonus of 25%
of the 1997 Bonus Base Salary will be payable to Speer for the
year ended December 31, 1997 on the basis as described in
subparagraph (a) above, except that the Company's budgeted
EBITDA Amount for such year shall be established by the
agreement of Speer and the Chairman of the Company prior to the
commencement of such year. Speer will also be eligible for a
cash bonus, in an amount not to exceed 25% of Speer's 1997 Bonus
Base Salary, at the discretion of the Board of Directors of the
Company, based upon the Board's good faith evaluation of Speer's
performance for the year ended December 31, 1997. The cash
bonus described in this paragraph will be payable promptly
following certification by the independent outside auditors of
the Company of the Company's EBITDA Amount for the year.
(c) ADDITIONAL CONDITIONS TO BONUSES. It shall
be a further condition to the payment of any bonuses described
in this paragraph 5(b)(i) that Speer be an employee of the
Company at the end of the fiscal year to which such bonuses
relate.
(ii) DISCRETIONARY BONUSES. The Company may grant to
Speer annual bonuses in further compensation and as special
recognition for his services to the Company. Any such bonuses, which
shall not be mandatory, may be granted in the sole discretion of the
Board of Directors of the Company and at such times and in such manner
as the Board of Directors of the Company may determine.
c. FRINGE BENEFITS. In addition to the compensation set
forth above, Speer shall be entitled to the following benefits:
i. Four (4) weeks annual vacation during each of the
first two years of employment, provided that no more than two weeks
are to be taken consecutively;
ii. Sick leave and personal leave with pay in
accordance with the prevailing policies of the Company;
iii. Medical coverage under the group medical insurance
plan of the Company (or COBRA coverage, at the election of Speer);
iv. Participation in any pension plan maintained by
the Company for the general benefit of its employees;
v. At Speer's option, either (i) the Company shall
pay to Speer an automobile allowance of $650 per month, or (ii) the
Company, at its expense, shall furnish to Speer a fully equipped
automobile of comparable value for use during the term of this
Agreement; and
vi. Any other benefits not specifically set forth
herein as may be granted by the Company or Cadiz, in its sole and
absolute discretion.
d. DEDUCTION AND REIMBURSEMENT. Speer hereby agrees that
the Company may deduct and withhold from the compensation payable to
Speer hereunder any amounts of money required to be deducted or
withheld by the Company under the provisions of any and all applicable
local, state or federal statutes or regulations or any amendments
thereto hereafter enacted requiring the withholding or deducting of
compensation. In the event the Company makes any payments or incurs
any charges for Speer's account, the Company shall have the right, and
Speer hereby authorizes the Company, to deduct from any compensation
payable to Speer hereunder any charges so paid or incurred by the
Company, but such right of deduction shall not be deemed to limit or
exclude any other rights of credit or recovery or any other remedies
the Company otherwise may have. Nothing hereinabove set forth shall
be deemed to obligate the Company to make any such payments or incur
any such charges. If it is determined that such deduction is
unauthorized, the Company agrees to reimburse Speer promptly, it being
understood, however, that notwithstanding the determination that any
deduction was unauthorized, the making of such deductions shall not
be deemed to be a breach by the Company of any of its obligations to
Speer hereunder.
6. TERMINATION.
------------
a. Except as provided in subsection (b) below, this
Agreement shall terminate:
i. At the election of the Company, upon the death or
permanent disability of Speer, "permanent disability" being defined
as any continuous loss of one-half (1/2) or more of the time spent by
Speer in the usual daily performance of his duties as a result of
physical or mental illness for a continuous period in excess of ninety
(90) days.
ii. At such time, if any, as the Company ceases to
conduct business for any reason whatsoever.
iii. At the election of the Company, upon the breach
by Speer of any term or condition of this Agreement or upon the
dismissal of Speer by the Company for cause. For purposes of this
Agreement, the Company shall have "cause" to terminate Speer's
employment if he (1) engages in one or more acts constituting a
felony; (2) engages in one or more acts involving fraud or serious
moral turpitude; or (3) misappropriates Company assets or engages in
gross misconduct materially injurious to the Company or its affiliates
or subsidiaries.
iv. During the first year of employment hereunder, at
any time upon 180 days' written notice of termination by either party
to the other, and thereafter at any time upon 90 days' written notice
of termination by either party to the other. Such termination may be
with or without cause for any reason whatsoever, whether arbitrary or
not, provided, however, that any amount due under Section 4 hereof
shall be prorated as of the date of termination and the amount so
determined to be due and payable hereunder shall be paid within thirty
(30) days after said date of termination to Speer or his estate, as
applicable. The Company shall have no further obligation under this
Agreement to make any payments to, or bestow any benefits upon, Speer
after the date of termination; provided, however, that termination of
this Agreement shall not affect the right of Speer to exercise any
theretofore vested options granted pursuant to Section 5(a) above.
b. RETURN OF COMPANY'S PROPERTY. If this Agreement is
terminated for any of the foregoing reasons, the Company may, at its
option, require Speer to vacate his offices prior to the effective
date of a termination and to cease all activities on the Company's
behalf. Speer agrees that on the termination of his employment in any
manner, he will immediately deliver to the Company all notebooks,
brochures, documents, memoranda, reports, price lists, files,
invoices, purchase orders, books, correspondence, customer lists, or
other written or graphical records, and the like, relating to the
business or work of the Company, which are or have been in his
possession or under his control and which have not been returned to
the Company. Speer hereby expressly acknowledges that all such
materials referenced above are the property of the Company.
c. PUBLIC IDENTIFICATION. If this Agreement is terminated
pursuant to any provision of this Section 6, Speer shall immediately
and forever thereafter cease to hold himself out to any person, firm,
partnership, corporation or other entity as an employee, agent,
independent contractor or representative of the Company or of any
entity owned by, or affiliated with, the Company.
7. EXPENSES.
--------
The Company shall reimburse Speer for all out-of-pocket
expenses incurred by Speer in the performance of his duties hereunder,
including, but not limited to, telephone, travel, and office expenses,
all subject to such written guidelines and/or requirements for
verification as the Company may, in its sole and absolute discretion,
establish.
8. CONFIDENTIALITY AND TRADE SECRETS.
-----------------------------------
For purposes of this Section 8, the term "Company" shall
collectively refer to the Company and any affiliate thereof.
<PAGE>
a. CONFIDENTIAL INFORMATION. Speer shall keep in
strictest confidence all information relating to the business,
affairs, customers and suppliers of the Company (collectively
hereinafter referred to as "Trade Secrets"), including, among other
things but without limitation, the Company's cost of performing
services, pricing formulae, methods or procedures, and customer lists,
which Speer may acquire during the performance of his services and
duties hereunder and which is not otherwise generally known to the
public. Speer acknowledges that such Trade Secrets are of great
value, and have been developed and/or acquired at great expense to the
Company, and the Company would not enter into this contract of
employment and such information would not be made available to Speer
in Speer's fiduciary capacity unless the Company were assured that all
such information will be used for the exclusive benefit of the
Company. Accordingly, during the term of this Agreement, and at all
times thereafter, Speer shall not publish, communicate, divulge,
disclose or use, whether or not for his own benefit, any such
information without the prior written consent of the Company.
Further, Speer agrees that during the period of his employment, Speer
will not, directly or indirectly, engage in the business of, or own
or control any interest in (except as a passive investor owning less
than 10% of the equity securities of a publicly held company), or act
as a director, officer of employee of, or consultant to, any
individual, partnership, joint venture, corporation or other business
entity, directly or indirectly engaged anywhere in the United States,
its possessions and territories, in any business competitive with the
business then being carried on by the Company; nor will Speer engage
in any such activity following the termination of his employment
hereunder (however and by whomever caused and irrespective or whether
or not such termination is for cause), if the loyal and complete
fulfillment by Speer of such activities would demand, inherently, that
Speer reveal Trade Secrets.
b. CUSTOMER INFORMATION. Speer hereby specifically agrees
that he will not utilize any information concerning the customers of
the Company which Speer acquires during the term of this Agreement,
whether or not the same originated through Speer's efforts, for any
purpose detrimental to the business of the Company. Without
limitation of the foregoing, Speer agrees that he shall not at any
time interfere with any existing contracts of the Company, and further
agrees that he shall not engage in business discussions with any
person or entity with whom he or the Company are in negotiations at
the time he ceases to be an employee of the Company until after such
negotiations have been concluded.
c. SOLICITATION OF EMPLOYEES. Speer acknowledges that
important factors in the Company's business and operations are the
loyalty and good will of its employees and its customers.
Accordingly, Speer agrees that both during the term of this Agreement
and after the expiration or termination of this Agreement he will not
enter into, and will not participate in, any plan or arrangement to
cause any of the Company's employees to terminate his employment with
the Company or hire any of such employees in connection with business
initiated by Speer or any other person, firm or corporation. Speer
further agrees that information as to the capabilities of the
Company's employees, their salaries and benefits, and the other terms
of their employment is confidential and proprietary to the Company and
constitutes its valuable trade secrets.
d. ONGOING OBLIGATION. The provisions in this Section 8
shall be binding during Speer's employment and at all times
thereafter, regardless of the circumstances or reasons for termination
of this Agreement. In the event the provisions in this Section 8 are
more restrictive than permitted by the laws of the jurisdiction in
which enforcement of this provision is sought, such provisions shall
be interpreted to extend only over the maximum period of time, range
of activities or geographic area as to which it may be enforceable.
9. REMEDY FOR BREACH.
-----------------
Speer acknowledges that the services to be rendered by him
hereunder are of a special, unique and extraordinary character, which
gives this Agreement a peculiar value to the Company, the loss of
which cannot be reasonably or adequately compensated in damages in an
action at law, and a breach by Speer of the provisions of this
Agreement will cause the Company irreparable injury. It is,
therefore, expressly acknowledged that this Agreement may be enforced
by injunction and other equitable remedies, without bond. Such relief
shall not be exclusive, but shall be in addition to any other rights
or remedies Company may have for such breach, and Company shall be
entitled to recover all costs and expenses, including reasonably
attorneys' fees, incurred by reason of any breach of the covenants of
this Agreement.
10. LITIGATION AND ATTORNEYS FEES.
------------------------------
In the event of any litigation between the parties hereto
in connection with this Agreement or to enforce any provision or right
hereunder, the unsuccessful party to such litigation shall pay to the
successful party therein all costs and expenses, including but not
limited to reasonable attorneys' fees incurred therein by such
successful party, which costs, expenses and attorneys' fees shall be
included as a part of any judgment rendered in such action in addition
to any other relief to which the successful party may be entitled.
11. GENERAL PROVISIONS.
-------------------
a. The failure of the Company at any time to enforce
performance by Speer of any provisions of this Agreement shall in no
way affect the Company's rights thereafter to enforce the same, nor
shall the waiver by the Company of any breach of any provision hereof
be held to be a waiver of any other breach of the same or any other
provision.
b. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and the successors and assigns of the
Company; provided, however, it is understood and agreed that the
services to be rendered and the duties to be performed by Speer
hereunder are of a special, unique and personal nature and that it
would be difficult or impossible to replace such services; by reason
thereof, Speer may not assign either the benefits or the obligations
of this Agreement.
c. Speer shall be considered an employee of the Company
within the meaning of all federal, state and local laws and
regulations governing unemployment insurance, workers' compensation,
industrial accident, labor and taxes.
d. This Agreement is the entire agreement between the
parties hereto with respect to the subject matter hereof and
supersedes all prior oral and written agreements and negotiations
between the parties.
e. The headings of the several paragraphs in this
Agreement are inserted solely for the convenience of the parties and
are not a part of and are not intended to govern, limit or aid in the
construction of any term or provision hereof.
f. This Agreement may not be modified except by a written
instrument signed by all parties hereto.
g. All clauses and covenants contained in this Agreement
are severable, and in the event any of them shall be held to be
invalid by any court, such clauses or covenants shall be limited as
permitted under applicable law, or, if the same are not susceptible
to such limitation, this Agreement shall be interpreted as if such
invalid clauses or covenants were not contained herein.
h. This Agreement is made with reference to the laws of
the State of California and shall be governed by and construed in
accordance therewith. Any litigation concerning or to enforce the
provisions of this Agreement shall be brought in the courts of the
State of California.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
Speer:
/s/ Stanley E. Speer
--------------------
Stanley E. Speer
THE COMPANY
Sun World International, Inc.
By: /s/ Timothy J. Shaheen
------------------------
Timothy J. Shaheen,
Chief Executive Officer
By: /s/ Keith Brackpool
---------------------
Keith Brackpool, Chairman
CADIZ
Cadiz Land Company, Inc.
By: /s/ Dwight Makins
----------------------
Dwight Makins, Chairman
By: /s/ Keith Brackpool
----------------------
Keith Brackpool,
Chief Executive Officer
EXHIBIT 21.1
------------
SUBSIDIARIES OF THE COMPANY
Cadiz Valley Development Corporation
Pacific Packing, Inc.
Pacific Real Estate, Inc.
PSWRI Limited
Rancho Cadiz Mutual Water Company
Southwest Fruit Growers, LP
Sun World International, Inc.
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> APR-1-1996
<PERIOD-END> DEC-31-1996
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<SECURITIES> 0
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<CURRENT-ASSETS> 62,720
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<CURRENT-LIABILITIES> 17,951
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27,431
0
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<TOTAL-LIABILITY-AND-EQUITY> 230,790
<SALES> 23,780
<TOTAL-REVENUES> 23,780
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