As filed with the Securities and Exchange Commission on April 29, 1997
Registration No. 333-19109
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 1
to
Form S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
CADIZ LAND COMPANY, INC.
(Exact name of registrant as specified in its charter)
Delaware 0100 77-0313235
(State or other jurisdiction of (Primary Standard Industrial (IRS Employer
incorporation or organization) Classification Code Number) Identification No.)
10535 Foothill Boulevard, Suite 150
Rancho Cucamonga, California 91730
(909) 980-2738
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Keith Brackpool
10535 Foothill Boulevard, Suite 150
Rancho Cucamonga, California 91730
(909) 980-2738
(Name, address, and telephone number of agent for service)
Copies of communications to:
HOWARD J. UNTERBERGER, ESQ.
J. BRAD WIGGINS, ESQ.
Miller & Holguin
1801 Century Park East, Seventh Floor
Los Angeles, California 90067
(310) 556-1990
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / X /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. / /
If this Form is a post effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration
statement for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF ADDITIONAL REGISTRATION FEE
- ------------------------------------------------------------------------------
Proposed
Title of each maximum Proposed
class of offering maximum Amount of
securities to Amount price aggregate registration
be registered to be registered per unit offering price fee
- ------------------------------------------------------------------------------
Common Stock,
par value 397,917 shares(1) $5.00(2) $ 1,989,585.00 $ 602.91
$.01 per share
Warrants for the
purchase of 75,000 warrants
Common Stock (the "Warrants")(3)
- ------------------------------------------------------------------------------
(1) The Registration Statement as originally filed on December 31, 1996
covered the sale of 8,384,555 shares, for which a registration fee
of $11,909.88 was paid. This Amendment No. 1 covers an additional
397,917 shares, including 50,000 shares underlying outstanding
Options and 75,000 shares underlying the additional warrants which
are included in this Amendment, resulting in an additional
registration fee as shown in the table. Also registered hereunder
are an indeterminate number of additional shares of Common Stock
which may become issuable by virtue of anti-dilution provisions of
the Preferred Stock, the Options and the Warrants.
(2) Estimated solely for the purpose of calculating the registration fee,
and based, pursuant to Rule 457(c), on the average of the high and
low prices of the Registrant's Common Stock as reported by Nasdaq
for April 22, 1997, which date is within 5 business days prior to
the initial filing date of this Amendment to the Registration
Statement.
(3) No fee for registration of the Warrants is required by virtue of the
last sentence of Rule 457(g).
The Registrant hereby amends this Registration Statement on such
date or dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
CADIZ LAND COMPANY, INC.
Cross-Reference Sheet Pursuant to Item 501(b) of Regulation S-K Showing
the Location in the Prospectus of the Information Required by Part I of Form
S-1
REQUIRED INFORMATION LOCATION IN PROSPECTUS
-------------------------------------- ---------------------------
1. Forepart of the Registration Statement Facing Page of Registration
and Outside Front Cover Page of Statement; Cross-Reference
Prospectus Sheet; Outside Front Cover
Page of Prospectus
2. Inside Front and Outside Back Cover Inside Front Cover of
Pages of Prospectus Prospectus
3. Summary Information, Risk Factors and Prospectus Summary;
Ratios of Earnings to Fixed Charges Risk Factors
4. Use of Proceeds Inapplicable (as indicated on
Outside Front Cover of
Prospectus and in
Prospectus Summary and
Plan of Distribution)
5. Determination of Offering Price Inapplicable
6. Dilution Inapplicable
7. Selling Security Holders Selling Security Holders
8. Plan of Distribution Outside Front Cover of
Prospectus; Plan of
Distribution
9. Description of Securities to Description of Securities
Be Registered
10. Interests of Named Experts and Legal Matters; Experts
Counsel
11. Information with Respect to the Prospectus Summary; The
Registrant Company; Risk Factors;
Price Range of Common
Stock and Dividend Policy;
Selected Financial Data;
Management's Discussion
and Analysis of Financial
Condition and Results of
Operations; Business;
Management; Certain
Transactions; Principal
Stockholders; Financial
Statements
12. Disclosure of Commission Position on Inapplicable
Indemnification for Securities Act
Liabilities
PROSPECTUS
CADIZ LAND COMPANY, INC.
8,782,472 Shares of Common Stock
(including 683,000 Shares sold in recent private placements;
7,368,252 Shares issued or issuable upon conversion
of outstanding shares of Series A Preferred Stock;
366,220 Shares issued or issuable in payment of dividends upon
outstanding shares of Series A Preferred Stock;
50,000 Shares issuable upon exercise of outstanding Options;
and 315,000 Shares issuable upon exercise of outstanding Warrants)
and 315,000 Warrants for the purchase of Common Stock
This Prospectus relates to the offer by the security holders
named herein under the caption "Selling Security Holders"
(collectively, the "Selling Security Holders") for sale to the public
of the following shares of the $.01 par value common stock (the
"Common Stock") of Cadiz Land Company, Inc. (the "Company" or "Cadiz")
(collectively, the "Shares"): (i) 683,000 outstanding shares of
Common Stock previously sold by the Company and an affiliate of the
Company in unregistered private placements (the "Placement Shares");
(ii) 7,368,252 shares of Common Stock (the "Conversion Shares") which
have been issued or are issuable by the Company upon the conversion of
shares of the Company's Series A Preferred Stock (the "Series A Preferred");
(iii) 366,220 shares of Common Stock (the "Dividend Shares") which have been
issued or are issuable by the Company in payment of dividends on the Series A
Preferred Stock; (iv) 50,000 shares of Common Stock (the "Option Shares")
which are issuable by the Company upon the exercise of outstanding options
(the "Options"); and (v) 315,000 shares of Common Stock (the "Warrant
Shares") which are issuable by the Company upon the exercise of
outstanding warrants (the "Warrants"). In addition, this Prospectus
relates to the offer by two of the Selling Security Holders for sale
to the public of the Warrants for the purchase of the Warrant Shares.
The Company will not receive any proceeds from the sale by the
Selling Security Holders of the Shares or the Warrants offered
hereunder. See "Plan of Distribution."
The Conversion Shares covered by this Prospectus include
53,332 Conversion Shares which were previously issued upon conversion
of Series A Preferred and an additional 7,314,920 Conversion Shares
which are issuable upon conversion of outstanding shares of Series A
Preferred Stock. Each share of Series A Preferred was issued for $1,000
and is convertible into Conversion Shares at a rate of $3.75 per share.
See "Description of Securities."
The Dividend Shares covered by this Prospectus include
199,905 Dividend Shares which were previously issued in payment of
stock dividends on Series A Preferred and an additional 166,315
Dividend Shares which are issuable upon payment of stock dividends on
outstanding shares of Series A Preferred Stock. Dividends payable on
the Company's Series A Preferred Stock are payable in the form of either
cash or shares of Common Stock at the option of the Company. The numbers
of Dividend Shares used in this Prospectus have been determined based
on the assumption that all Series A Preferred Stock dividends will be paid
in the form of shares of Common Stock. See "Description of Securities."
The 315,000 Warrant Shares covered by this Prospectus are
issuable upon exercise of outstanding Warrants held by two of the
Company's institutional lenders. The 240,000 Warrants of one holder
are exercisable until December 31, 2000 at an exercise price of $.05
per Warrant Share. The 75,000 Warrants of the other holder are exercisable
for five years, beginning on April 30, 1997, at an exercise price equal
to the average daily closing price of the Company's Common Stock over
a ten trading day period ending on April 29, 1997. See "Description of
Securities."
The Common Stock is quoted in the National Market System of the
National Association of Securities Dealers Automated Quotation system
("Nasdaq") under the symbol "CLCI." The closing sale price of the
Common Stock reported by Nasdaq on April 22, 1997, was $5.0625. See
"Price Range of Common Stock and Dividend Policy."
The Selling Security Holders have advised the Company that they
may sell, directly or through brokers, all or a portion of the
securities offered hereby in negotiated transactions or in one or more
transactions in the market at the price prevailing at the time of
sale. In connection with such sales, the Selling Security Holders and
any participating broker may be deemed to be "underwriters" of the
Shares within the meaning of the Act. It is anticipated that usual
and customary brokerage fees will be paid by Selling Security Holders
in all open market transactions. The Company will pay substantially
all other expenses of the offering. See "Plan of Distribution."
The Company has filed a registration statement under the
Securities Act of 1933, as amended (the "Act"), covering the offer and
sale of the Shares by the Selling Security Holders. This registration
is in satisfaction of the terms of agreements by the Company with
certain Selling Security Holders to register their Shares and Warrants
for resale under the Act.
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES
A HIGH DEGREE OF RISK. SEE "RISK FACTORS."
______________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION,
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is ___________, 1997
No dealer, salesman or other person has been authorized to give
any information or make any representations, other than those
contained in this Prospectus, in connection with the offering hereby,
and, if given or made, such information and representations must not
be relied upon as having been authorized by the Company or the Selling
Security Holders. This Prospectus does not constitute an offer to
sell, or a solicitation of an offer to buy, any securities to any
person in any State or other jurisdiction in which such offer or
solicitation is unlawful. Neither the delivery of this Prospectus nor
any sale made hereunder shall, under any circumstances, create any
implication that there has been no change in the affairs of the
Company or the facts herein set forth since the date hereof.
This Prospectus includes "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended and
Section 21E of the Securities and Exchange Act of 1934, as amended. All
statements other than statements of historical facts included in this
Prospectus including, without limitation, the statements under "Prospectus
Summary," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business" and located elsewhere herein regarding
industry prospects and the Company's financial position are forward-
looking statements. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable, it can give
no assurance that such expectations will prove to have been correct.
Important factors that could cause actual results to differ materially
from the Company's expectations ("Cautionary Statements") are disclosed in
this Prospectus including, without limitation, in conjunction with the
forward-looking statements included in this Prospectus and under "Risk
Factors." All subsequent written and oral forward-looking statements
attributable to the Company, the Selling Security Holders or persons
acting on their behalf are expressly qualified in their entirety by the
Cautionary Statements.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission
(the "Commission") a registration statement (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Act"),
with respect to the securities offered by this Prospectus. This
Prospectus does not contain all of the information set forth in the
Registration Statement. For further information with respect to the
Company and the securities offered hereby, reference is made to the
Registration Statement and to the schedules and exhibits filed
therewith, which may be inspected without charge at the principal
office of the Commission, 450 5th Street, N.W., Washington, D.C.
20549, and copies of the material contained therein may be obtained
from the Commission upon payment of applicable copying charges.
Statements contained in this Prospectus as to the contents of any
contract or other document referred to herein are not necessarily
complete, and in each instance reference is made to the copy of such
contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference.
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended, and in accordance
therewith files reports and other information with the Commission.
Such reports and other information filed by the Company can be
inspected and copied at the public reference facilities maintained by
the Commission at Room 1024, 450 5th Street, N.W., Washington, D.C.
20549, and at the Commission's regional offices at 7 World Trade
Center, Suite 1300, New York, New York 10048, and Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of
such material can be obtained from the Public Reference Section of the
Commission at 450 5th Street, N.W., Washington, D.C. 20549, at
prescribed rates. The Commission also maintains a Web site
(http://www.sec.gov) that contains reports, proxy and information
statements and other information regarding the Company and other
registrants that file electronically with the Commission.
TABLE OF CONTENTS
Page
----
Prospectus Summary . . . . . . . . . . . . . . . . . . . . . .
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . .
Price Range of Common Stock and Dividend Policy. . . . . . . .
Selected Financial Data. . . . . . . . . . . . . . . . . . . .
Management's Discussion and Analysis
of Financial Condition and Results of Operations . . . . . . .
Business . . . . . . . . . . . . . . . . . . . . . . . . . . .
Principal Stockholders. . . . . . . . . . . . . . . . . . . . .
Management . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certain Relationships and Related Transactions . . . . . . . . .
Selling Security Holders . . . . . . . . . . . . . . . . . . . .
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . .
Description of Securities. . . . . . . . . . . . . . . . . . . .
Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . .
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Index to Financial Statements. . . . . . . . . . . . . . . . . . F-1
PROSPECTUS SUMMARY
The following summary information is qualified in its entirety by
the detailed information and consolidated financial statements,
including the notes thereto, appearing elsewhere in this Prospectus
and, accordingly, should be read in conjunction with that information
and those financial statements and notes.
THE COMPANY
Cadiz Land Company, Inc. (the "Company" or "Cadiz") was formed in
1983 under the name AridTech, Inc. On May 9, 1988, the name of the
Company was changed to Pacific Agricultural Holdings, Inc., and in May
1992 the Company's shareholders approved the reincorporation of the
Company into Delaware under its current name.
The long-term strategy of the Company is to acquire and develop
water-related land and agricultural assets. The Company has created an
integrated and complementary portfolio of landholdings, water resources,
and agricultural operations within central and southern California which
either possess sizable assured supplies of water or can, in future years,
utilize water supplied from other Company properties. Management believes
that, with both the increasing scarcity of water supplies in California
and the increasing demand for water, the Company's access to water will
provide it with a competitive advantage both as a major agricultural
concern and as a supplier of water which will lead to continued appreciation
in the value of the Company's portfolio.
In 1996, the Company significantly enhanced this portfolio through
its acquisition of Sun World International, Inc. ("Sun World"). The Sun
World acquisition has made the Company one of the largest fully integrated
agricultural companies in California. The Sun World acquisition added to
the Company's portfolio more than 17,000 acres of prime agricultural land,
packing facilities, marketing expertise, proprietary agricultural products
and the highly regarded Sun World brand name.
Sun World ships approximately 75 varieties of fresh produce to all
50 states in the United States and exports fresh fruits and vegetables to
over 30 foreign countries. Produce grown or distributed by Sun World
reaches more than 600 accounts including supermarket retailers, food
service entities, warehouse clubs and international trading companies
throughout North America, Europe and Pacific Rim countries. For the
twelve months ended December 31, 1996, Sun World recorded revenues of
$100.4 million.
The acquisition of Sun World also added valuable water rights to the
Company's existing water resource development operations. In addition to
its Sun World properties, the Company holds more than 39,000 acres of land
in eastern San Bernardino County. These landholdings are underlain by
excellent groundwater resources and are located adjacent to the major
aqueduct systems of central and southern California, and in close proximity
to the Colorado River. The Company expects to utilize these resources to
participate in a broad variety of water transfer and storage projects,
including the transfer of surplus water to public agencies which require
supplemental sources of water.
The Company continually seeks to develop and manage its land, water
and agricultural resources for their highest and best use. Agricultural
development will enable the Company to maximize the value of its landholdings
while generating cash flow. The Company will continue to pursue opportunities
for use of its water resources, both for internal operations and to relieve
water shortages in other portions of Southern California.
The Company's principal offices are located at 10535 Foothill
Boulevard, Suite 150, Rancho Cucamonga, California 91730, and its
telephone number is (909) 980-2738.
THE OFFERING
Total Shares Offered by the
Selling Security Holders . . . . . . . . 8,782,472 Shares
Placement Shares. . . . . . . . . . . 683,000 Shares
Conversion Shares . . . . . . . . . . 7,368,252 Shares
Dividend Shares . . . . . . . . . . . 366,220 Shares
Option Shares . . . . . . . . . . . 50,000 Shares
Warrant Shares. . . . . . . . . . . . 315,000 Shares
Total Warrants Offered by the
Selling Security Holders . . . . . . . . 315,000 Warrants
Common Stock Outstanding Prior
to this Offering(1). . . . . . . . . . . 24,447,387 shares
Common Stock to Be Outstanding
After Completion of this Offering(2) . . 32,053,622 shares
Risk Factors . . . . . . . . . . . . . This offering is speculative and
involves a high degree of risk.
See "Risk Factors."
Use of Proceeds. . . . . . . . . . . . . The Company will not receive any
proceeds from the sale of Shares
or the sale of Warrants pursuant
to this Prospectus.
Nasdaq National Market System Symbol CLCI
____________________
(1) As of April 22, 1997.
(2) Assumes the conversion of all outstanding Series A Preferred;
the payment of all dividends on all outstanding Series A Preferred
in the form of Dividend Shares; and the exercise of all outstanding
Options and Warrants.
SUMMARY FINANCIAL DATA
The following summary financial data insofar as it relates to the nine
months ended December 31, 1996 and to each of the years ended March 31, 1996,
1995, 1994 and 1993 has been derived from financial statements audited by
Price Waterhouse LLP, independent accountants. The information that follows
should be read in conjunction with the audited consolidated financial
statements of the Company and notes thereto for the nine months ended
December 31, 1996 and for the two years ended March 31, 1996 included
elsewhere herein. See also "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the audited consolidated
financial statements included herein for Sun World, which was aquired
by the Company on September 13, 1996.
CADIZ LAND COMPANY, INC.
SUMMARY FINANCIAL DATA
($ in thousands, except for per share data)
Nine Months Ended
December 31, Year Ended March 31,
1996(1) 1996 1995 1994 1993
---------------- ---------------------------------------
Statement of
Operations Data:
Revenues $ 23,780 $ 1,441 $ 543 $ 190 $ -0-
Loss from
continuing
operations
before
extraordinary
items $ (5,997) $ (8,487) $ (4,706) $ (4,239) $(4,087)
Gain (loss)
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
(loss)
from
operations
of discontinued
segment
and disposal of
discontinued
segment(2) $ -0- $ -0- $ -0- $ 0.01 $ -0-
Extraordinary
items $ -0- $ -0- $ 0.01 $ 0.03 $ -0-
Net loss $ (0.44) $ (0.48) $ (0.28) $ (0.29) $ (0.47)
Weighted average
common shares and
equivalents 20,500 17,700 16,500 12,800 8,700
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 agri-
business operations acquired as part of its 1988 merger with Pacific
Agricultural Services, Inc.
RISK FACTORS
The securities offered hereby involve a high degree of risk. Prior
to making an investment, prospective investors should carefully consider
the following risks affecting the Company and this offering. This
Prospectus, and particularly the Management's Discussion and Analysis
section, contains trend analysis and other forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. Actual results could differ materially from those projected in
the forward-looking statements throughout this document as a result of the
factors described below.
HISTORICAL OPERATING LOSSES AND ACCUMULATED DEFICITS/UNCERTAINTY OF EFFECT
- --------------------------------------------------------------------------
OF SUN WORLD ACQUISITION
- ------------------------
The Company has a history of operating losses (approximately $8.5
million for the fiscal year ended March 31, 1996 and approximately $6.0
million for the nine months ended December 31, 1996) and accumulated
deficits (approximately $54.4 million at March 31, 1996 and approximately
$61.1 million at December 31, 1996). See "Selected Financial Data" and
"Management's Discussion and Analysis of Financial Condition and Results
of Operations." As the results of operations of Sun World prior to September
14, 1996 have not been consolidated with those of the Company, such prior
operating history of the Company is not indicative of future trends; rather,
the Company's consolidated results of operations will be largely dependent
upon the results of operations of its Sun World subsidiary. The Company
cannot predict with any degree of accuracy what effect its acquisition of
Sun World will have on its business operations in the next several years.
See also "Risks Inherent in Agricultural Operations," below.
RISKS INHERENT IN AGRICULTURAL OPERATIONS
- ------------------------------------------
The Company is subject to risks associated with its agricultural
operations. Numerous factors can affect the price, yield, and marketability
of the crops grown on the Company's properties. Crop prices may vary
greatly from year to year as a result of the relationship between production
and market demand. For example, the production of a particular crop in
excess of demand in any particular year will depress market prices, and
inflationary factors and other unforeseeable economic changes may also, at
the same time, increase operating costs with respect to such crops. In
addition, the agricultural industry in the United States is highly
competitive, and domestic growers and produce marketers are facing
increased competition from abroad, particularly from Mexico. There
are also a number of factors outside of the Company's control that
could, alone or in combination, materially adversely affect the Company's
agricultural operations, such as adverse weather conditions, insects,
blight or other diseases, labor problems such as boycotts or strikes and
shortages of competent laborers. The Company's operations may also be
adversely affected by changes in governmental policies, social and
economic conditions, and industry production levels. As a result, there
can be no assurance that the Company's agricultural operations will be
commercially profitable.
SEASONALITY
- -----------
Sun World's agricultural operations are impacted by the general
seasonal trends that are characteristic of the agricultural industry.
Sun World has historically received the majority of its net income
during the second and third calendar quarters following the harvest
and sale of its table grape and tree fruit crops. Due to this
concentrated activity, the Company has, therefore, historically incurred
a loss with respect to its agricultural operations in the first and fourth
calendar quarters. See "Risk Factors-Significant Leverage and Working
Capital Requirements."
In connection with the water resource development activities of
the Company, revenues are not expected to be seasonal in nature. The
Company does not expect that contracts entered into for the transfer or
storage of water will provide for revenue payments varying significantly
from season to season.
DEVELOPMENT STAGE RISKS OF PROPOSED COMMERCIAL PRODUCTION AND TRANSFER
OF WATER
- ------------------------------------------------------------------
The Company anticipates that it will continue to incur operating
losses from its non-Sun World operations until such time as it is able
to receive significant revenues from the development of its water
transfer projects. Additional financing specifically in connection with
the Company's water projects will be required. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations." In addition
to the risk of delays associated with receiving all necessary regulatory
approvals and permits, the Company may also encounter unforeseen technical
difficulties which could result in construction delays and cost increases
with respect to the Company's water transfer projects. The Company is
continuing to negotiate the specific terms of water delivery and/or
storage arrangements with various California water agencies. However,
the outcome of these negotiations cannot be predicted with any degree of
certainty. There can be no assurances as to the amount of water which the
Company will be able to deliver or store under such arrangements, nor as
to the price which the Company will be able to obtain. Furthermore, the
Company has no experience to date in the commercial production and
delivery of water in large amounts on a long term basis. There is,
therefore, a limited historical basis on which to evaluate future
performance of the Company's proposed operations in this area.
POTENTIAL ADVERSE EFFECT OF RAIL-CYCLE PROJECT ON THE COMPANY
- -------------------------------------------------------------
In November 1995 the San Bernardino County Board of Supervisors
certified the Environmental Impact Report/Environmental Impact Statement
("EIR/EIS") for, and approved a Conditional Use Permit for, the proposed
construction and operation of a landfill adjacent to the Company's
Cadiz properties (the "Rail-Cycle Project"). The Company
contends that the Rail-Cycle Project, as currently designed, poses
environmental risks to both the Company's agricultural operations at
Cadiz and to the groundwater basin underlying the Cadiz property. The
Company has vigorously opposed the Rail-Cycle Project on a number of
grounds and has filed a lawsuit seeking, among other things, to set
aside the County's certification of the EIR/EIS and approval of the
proposed project. There can be no assurances as to the outcome of the
Company's lawsuit. Furthermore, the Board of Supervisors decided to
require a business license tax to be levied against the Rail-Cycle
Project which, prior to adoption, required approval by a majority vote
in a general election. The business license tax was not approved
in the general election held in March 1996, thus at least temporarily
halting the Rail-Cycle Project. The Company believes that the Rail-Cycle
Project, if constructed and operated as proposed, will have a materially
adverse impact upon the Company's business. See "Business - Legal
Proceedings." However, management is unable to predict the magnitude of
such impact, if any, at this time.
SIGNIFICANT LEVERAGE AND WORKING CAPITAL REQUIREMENTS
- -----------------------------------------------------
As a result of the Sun World acquisition, the consolidated Company's
capital structure is significantly leveraged. On April 16, 1997, the
Company completed a restructuring of its indebtedness. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources." After giving effect to the restructuring,
Cadiz has approximately $10 million of indebtedness outstanding due
April 30, 1998 (with provisions for extensions, if required), and Sun
World has $120 million of indebtedness outstanding (including $115
million of 11-1/4% First Mortgage Notes due April 15, 2004 (the "Sun World
Notes")) and $30 million of borrowing availability under a revolving credit
facility (the "Revolving Credit Facility"). The Cadiz indebtedness is
secured by substantially all of the Company's non-Sun World assets. The Sun
World Notes are secured by a first lien on substantially all of the assets
of Sun World and its subsidiaries, other than the growing crops, crop
inventories and accounts receivable and proceeds thereof, which secure the
Revolving Credit Facility. The Sun World Notes are also secured by the stock
of Sun World held by the Company. Sun World will depend on the Revolving
Credit Facility to meet its significant seasonal working capital needs in 1997.
Management anticipates that the credit available under the Revolving Credit
Facility will be sufficient to meet Sun World's current seasonal requirements,
although no assurances can be given. See "Seasonality" above and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources."
The degree to which the Company's capital structure is leveraged could
impair both the Company's and Sun World's access to additional financing
in the future for working capital, capital expenditures, acquisitions, and
general or other corporate purposes. The ability of the Company and Sun
World to generate sufficient working capital and cash flow needed for
ongoing debt service and working capital needs depends on the future
performance of the Company and Sun World. If Sun World does not generate
sufficient cash flow to service its debt, or if Sun World or Cadiz fail to
comply with covenants in the indenture under which the Sun World Notes
were issued (the "Sun World Indenture"), they would face a default on
their obligations. Such a default could result in the loss of all of the
Company's investment in Sun World.
LIMITATIONS ON ACCESS TO SUN WORLD CASH FLOW AND DIVIDENDS
- ----------------------------------------------------------
The Company's ability to receive distributions from Sun World's cash
flow is restricted by a series of covenants in the Sun World Indenture that
allow for the payment of dividends subject to meeting certain tests and
ratios. However, the Company receives a quarterly management fee from
Sun World plus reimbursement of the Company's overhead expenditures
attributable to the operations of Sun World.
ENVIRONMENTAL MATTERS
- ---------------------
In the normal course of its agricultural operations, the Company handles,
stores, transports and dispenses products identified as hazardous materials
which could subject the Company to liability for the cleanup of such
hazardous substances or wastes or may adversely affect the value of the
Company's properties. Regulatory agencies periodically conduct inspections
and, currently, there are no pending claims with respect to hazardous
materials.
REGULATION
- -----------
Certain areas of the Company's operations are subject to varying
degrees of federal, state and local laws and regulations. The Company's
agricultural operations are subject to a broad range of evolving
environmental laws and regulations. These laws and regulations include the
Clean Air Act, the Clean Water Act, the Resource Conservation and Recovery
Act, the Federal Insecticide, Fungicide and Rodenticide Act, the
Comprehensive Environmental Response and the 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 assurances that the cost of compliance with environmental
laws and regulations in the future will not be material.
The Company's food operations are also subject to regulations enforced
by, among others, the U.S. Food and Drug Adminstration and state, local
and foreign equivalents and to inspection by the U.S. Department of
Agriculture and other federal, state, local and foreign environmental
and health authorities. Among other things, the U.S. Food and Drug
Administration enforces statutory standards regarding the safety of food
products, establishes ingredients and manufacturing procedures for certain
foods, establishes standards of identity for foods and determines the
safety of food substances in the United States. Similar functions are
performed by state, local and foreign governmental entities with respect
to food products produced or distributed in their respective jurisdictions.
In addition, there can be no assurances as to the effect of any environmental
regulations which may be adopted in the future.
REGULATORY APPROVALS
- --------------------
As the Company proceeds with the development of its properties,
including related infrastructure, the Company will be required to
satisfy various regulatory authorities that it is in compliance with the
laws, regulations and policies enforced by such authorities.
Groundwater development, and the export of surplus groundwater for sale
to single entities such as public water agencies, are not subject to
regulation by existing statutes, other than general environmental
statutes applicable to all development projects. Management cannot predict
with certainty what requirements, if any, may be imposed by regulators upon
future development. In addition, the time and costs associated with obtaining
regulatory approvals for resource development are significant, and there can
be no assurance that the Company will receive desired approvals for future
development plans.
COMPETITION
- -------------
The agricultural business is highly competitive. The Company's
competitors include a limited number of large international food
companies, as well as a large number of smaller independent growers and
grower cooperatives. No single competitor has a dominant market share
in this industry due to the regionalized nature of these businesses.
Sun World utilizes brand recognition, product quality, harvesting in
favorable product windows, competitive pricing,
effective customer service and consumer marketing programs to enhance its
position within the highly competitive fresh food industry. Consumer and
institutional recognition of the Sun World trademark and related brands and
the association of these brands with high quality food products contribute
significantly to Sun World's ability to compete in the market for fresh
fruit and vegetables.
The Company faces competition for the acquisition, development and
sale of its properties from a number of competitors, some of which have
significantly greater resources than the Company. The Company may also
face competition in the development of water resources associated with
its properties. Since California has scarce water resources and an
increasing demand for available water, the Company believes that price
and reliability of delivery are the principal competitive factors
affecting transfers of water in California. In this regard, the ability
of the Company to price its water on a competitive basis will depend
upon the cost of constructing and maintaining delivery systems for its
surplus water. See "Business - Description of Business - Competition."
AUTHORIZATION OF "BLANK CHECK" PREFERRED STOCK
- -----------------------------------------------
The Company's Certificate of Incorporation, as amended, authorizes
the issuance of up to 100,000 shares of preferred stock with such
designations, rights and preferences as may be determined from time to
time by the Company's Board of Directors. Accordingly, the Board of
Directors is empowered, without stockholder approval, to issue preferred
stock in one or more series, and to fix for any series the dividend
rights, dissolution or liquidation preferences, redemption prices,
conversion rights, voting rights, and other rights, preferences or
privileges for such preferred stock which could adversely affect the
voting power or other rights of the holders of the Common Stock. To
date the Board of Directors has designated three series of Preferred
Stock for issuance, including (i) up to 60,000 shares of
Series A Preferred, of which 27,631 shares have been issued and
27,431 shares will remain outstanding until May 7, 1997, when they will
all be mandatorily converted by the Company into 7,314,920 shares of
Common Stock (see "Description of Securities"); (ii) up to 1,000 shares
of 6% Convertible Series B Preferred Stock (the "Series B Preferred"), of
which 1,000 shares have been issued and 90 shares currently remain
outstanding; and (iii) up to 365 shares of 6% Convertible Series C
Preferred Stock (the "Series C Preferred"), of which 300 shares have been
issued and no shares currently remain outstanding. See "Description of
Securities." The Board of Directors has no present plans or arrangements
for the issuance of additional shares of Preferred Stock, and the Company's
ability to issue additional Preferred Stock is restricted by covenants in
the Sun World Indenture. However, there can be no assurance that the
Company will not issue such shares in the future. Such shares could, under
certain circumstances, be issued as a method of discouraging, delaying or
preventing a change in control of the Company. The issuance of such shares
could prevent holders of the Company's Common Stock from receiving a
premium for their shares from a potential third-party acquiror.
DILUTION UPON CONVERSION AND EXERCISE OF SECURITIES
- ----------------------------------------------------
The issuance of Shares upon conversion and exercise of outstanding
Preferred Stock and Warrants may have certain dilutive effects,
including dilution of the Company's earnings per share.
MARKET RISKS FROM SUBSTANTIAL INCREASE IN NUMBER OF SHARES OF COMMON STOCK
ELIGIBLE FOR RESALE
- --------------------------------------------------------------------------
The registration for resale hereunder of 683,000 Placement Shares,
7,368,252 Conversion Shares, 366,220 Dividend Shares, 50,000 Options Shares
and 315,000 Warrant Shares, for an aggregate total of 8,782,472 Shares, will
significantly increase the number of outstanding shares of Common Stock
of the Company eligible for resale. See "Description of Securities." The
sale, or availability for sale, of these Shares could cause downward
pressure on, and decreases in, the market price of the Company's Common Stock,
particulary in the event that a large number of Shares were sold in the
public market over a short period of time.
NO ASSURANCE OF DIVIDENDS ON COMMON STOCK
- ----------------------------------------------
To date, the Company has never paid a cash dividend on Common
Stock, and the Company's ability to pay such dividends is restricted by a
series of covenants in the Sun World Indenture that allow for the payment
of dividends subject to meeting certain tests and ratios. The Company
retained an investment banking firm to, among other things, advise the
Company as to the most tax-efficient means of distributing revenues from
the Company's operations to its shareholders. See "Price Range of Common
Stock and Dividend Policy."
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Company's Common Stock is traded on the Nasdaq National Market
under the symbol "CLCI." The following table reflects actual sales
transactions. The high and low price range of the Common Stock for each
of the dates indicated has been provided by Nasdaq.
High Low
Quarter Ended Sales Price Sales Price
-------------- -------------
1995:
March 31 $5.438 $4.125
June 30 $4.875 $4.000
September 30 $5.500 $3.688
December 31 $6.250 $4.063
1996:
March 31 $6.375 $5.250
June 30 $6.500 $5.219
September 30 $6.000 $3.875
December 31 $5.625 $3.875
1997:
March 31 $6.063 $4.838
On April 22, 1997, the high, low and last sales prices for the
Company's Common Stock, as reported by Nasdaq, were $5.125, $4.875 and
$5.0625, 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 will remain outstanding until May 7, 1997,
when they will all be mandatorily converted by the Company into 7,314,920
shares of Common Stock; (ii) up to 1,000 shares of Series B Preferred, of
which 1,000 shares have been issued and 90 shares currently remain
outstanding; and (iii) up to 365 shares of Series C Preferred, of which
300 shares have been issued and no shares currently remain outstanding.
See "Description of Securities." The Board of Directors has no present
plans or arrangements for the issuance of additional shares of Preferred
Stock. The Sun World Indenture includes covenants restricting the Company's
ability to issue additional shares of Preferred Stock. See "Risk Factors -
Authorization of 'Blank Check' Preferred Stock."
The estimated number of beneficial owners of the Company's Common
Stock is approximately 1,500, and the number of stockholders of record
on April 22, 1997, was 256.
To date, the Company has never paid a cash dividend on Common
Stock, and currently the Company's ability to pay such dividends is
restricted by a series of covenants in the Sun World Indenture that allow
for the payment of dividends subject to meeting certain tests and ratios.
The Company retained an investment banking firm to, among other things,
advise the Company as to the most tax-efficient means of distributing
revenues from the Company's operations. The amount and frequency of any
such dividends would be subject to the discretion of the Board of Directors.
SELECTED FINANCIAL DATA
The following selected financial data, insofar as it relates to
the nine months ended December 31, 1996 and each of the years ended March 31,
1996, 1995, 1994, and 1993 has been derived from financial statements audited
by Price Waterhouse LLP, independent accountants. The information that
follows should be read in conjunction with the audited consolidated financial
statements of the Company and notes thereto for the nine months ended
December 31, 1996 and for the two years then ended March 31, 1996 included
elsewhere herein. See also "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the audited consolidated
financial statements included herein for Sun World, which was acquired by the
Company on September 13, 1996.
CADIZ LAND COMPANY, INC.
SELECTED FINANCIAL DATA
($ in thousands, except for per share data)
Nine Months Ended
December 31, Year Ended March 31,
1996(1) 1996 1995 1994 1993
------ ------------------------------------------
Statement of
Operations Data:
Revenues $ 23,780 $ 1,441 $ 543 $ 190 $ -0-
Loss from
continuing
operations
before
extraordinary
items (5,997) (8,487) (4,706) (4,239) (4,087)
Gain (loss)
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
(loss)
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
equivalents 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 agri-
business operations acquired as part of its 1988 merger with Pacific
Agricultural Services, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
On September 13, 1996, the Company acquired all of the
outstanding capital stock of Sun World (the "Sun World
Acquisition"). The Sun World Acquisition was accounted for
using the purchase method of accounting. The Company's
consolidated financial statements include Sun World from the
date of acquisition. In addition, the Company has changed its
fiscal year end from March 31 to December 31 in order to align
the Company's year end with that of Sun World. The financial
statements set forth herein for the nine months ending December
31, 1996 are the first year end financial statements of the
Company to reflect the Sun World Acquisition. The operations of
Sun World have, and will continue to have, a significant impact
upon the Company's financial statements.
Following the Sun World Acquisition, management implemented
the following five-point strategy: (i) producing more varieties
of crops which are available for delivery at peak pricing
windows throughout the year; (ii) expanding third party
marketing and packing businesses to increase the Company's
ability to absorb the primarily fixed costs of its vertically
integrated operations; (iii) improving administrative efficiency
through both headcount reductions and a new comprehensive
management information system; (iv) commercializing Sun World's
extensive proprietary product portfolio consisting of over 600
world wide patents and trademarks; and (v) reducing leverage to
lower financial risk and improve operating flexibility.
As a result of this strategic plan, Sun World has: (i)
entered into new agreements to market fruit and vegetables from
Chile and Mexico; (ii) added equipment to its San Joaquin Valley
packing facility to pack citrus; (iii) relocated its
administrative offices to existing space at its San Joaquin
Valley packing facility; (iv) entered into licensing agreements
for certain of Sun World's proprietary products in Spain, Chile
and South Africa; and (v) completed asset sales of more than
$12.4 million of fallow land, with the proceeds applied to
reduce Sun World's leverage.
Prior to the Sun World Acquisition, Cadiz had utilized an
unclassified balance sheet (eliminating the distinction between
current assets and long-term assets and current liabilities and
long-term liabilities). The financial statements set forth
herein utilize a classified balance sheet, thus requiring
certain reclassifications to be made to the prior period
balances to conform with the December 31, 1996 presentation.
RESULTS OF OPERATIONS
The following is management's discussion of certain factors
which have affected the Company's financial condition and
results of operations for the nine months ended December 31,
1996 and the fiscal years ended March 31, 1996 and 1995 as
compared to prior periods.
The Company's results of operations for the nine months
ended December 31, 1996 include the results of operations of Sun
World for the period September 14, 1996 through December 31,
1996. The results of operations of Sun World prior to September
14, 1996 have not been consolidated with those of the Company.
As a result of the foregoing, and as a result of the change of
the Company's fiscal year end from March 31 to December 31,
direct comparisons of the Company's consolidated results of
operations for the nine months ended December 31, 1996 with
results for the fiscal year ended March 31, 1996 will not, in
the view of management of the Company, prove meaningful.
Instead, a summary of the Sun World elements which management
of the Company believes essential to an analysis of the results
of operations for such periods is presented below. For purposes
of this summary, the term Sun World will be used, when the
context so requires, with respect to the operations and
activities of the Company's Sun World subsidiary, and the term
Cadiz will be used, when context so requires, with respect to
those operations and activities of the Company not involving Sun
World.
The following discussion contains trend analysis and other
forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Actual results
could differ materially from those projected in the forward-looking
statements throughout this document.
NINE MONTHS ENDED DECEMBER 31, 1996 COMPARED TO FISCAL YEAR
ENDED MARCH 31, 1996
During the nine months ended December 31, 1996, the Company
incurred a net loss of $6.0 million compared to a loss of $8.5
million during the fiscal year ended March 31, 1996. The
following table summarizes the net loss for both periods
(dollars in thousands):
Nine Months Fiscal Year
Ended Ended
December 31, March 31,
1996 1996
------ ------
Revenues $ 23,780 $ 1,441
---------- ---------
Costs and expenses:
Cost of sales 17,725 1,649
Resource development 1,133 1,680
Landfill prevention
activities 394 1,919
General and administrative 4,924 1,826
Depreciation 864 833
Amortization 175 234
Interest expense, net 5,203 1,787
Income tax benefit (641) -0-
---------- ---------
Net loss $ (5,997) $ (8,487)
========== ==========
The operations of Sun World for the period September 14
through December 31, 1996 are included above; however, due to
the seasonality of the operations of the Company, this is not
indicative of the results of operations should a full fiscal
year of activity be included.
The Company's net income or loss in future fiscal periods
will be largely reflective of the operations of Sun World. Sun
World conducts its operations through four operating divisions:
farming, packing, marketing, and proprietary product
development. Net profits from farming operations vary from year
to year primarily due to yield and pricing fluctuations which
can be significantly influenced by weather conditions, and are,
therefore, generally subject to greater annual variation than
Sun World's other divisions. However, the geographic
distribution of Sun World's farming operations and the diversity
of its crop mix makes it unlikely that adverse weather
conditions will affect all of Sun World's properties or all of
its crops in any single year. Nevertheless, as net profit from
Sun World's packing, marketing operations and proprietary
product development tends to be more consistent from year to year
than net profit from Sun World's farming operations, Sun World
is seeking to expand volume in the packing and marketing areas
by increasing the number of growers with which Sun World
maintains packing and marketing arrangements. Sun World is also
actively exploring various domestic and international
opportunities to license selected proprietary fruit varieties.
REVENUES. During the nine months ended December 31, 1996,
the Company recorded revenues of $23.8 million, of which $22.5
million resulted from Sun World operations, all of which were
recognized from September 14, 1996 (the date subsequent to the
Sun World Acquisition) through December 31, 1996. The balance of
the Company's revenues were recognized from the development
activities of Cadiz, consisting primarily of gross crop proceeds
from the Cadiz ranch.
COST OF SALES. Cost of sales for the nine months ended
December 31, 1996 of $17.7 million consisted of all direct costs and
an allocation of indirect costs related to revenue generated by the
Company, $16.4 million of which related to Sun World activities,
for the period September 14, 1996 through December 31, 1996, as
compared to $1.7 million for the Company during the fiscal year ended
March 31, 1996.
RESOURCE DEVELOPMENT. Expenses recorded in this category
consist of costs incurred in the land and water resource
development of the Company's landholdings. These costs include
the operating costs associated with the Company's continual
evaluation of additional potential land acquisition sites, such
as overhead, legal and travel, as well as the costs associated
with the development and transfer of surplus water from the
Company's Cadiz and Piute properties. See "Business - Narrative
Description of Business". In relation to the Cadiz water
transfer project, Cadiz expects completion of the required
EIS/EIR process within 18 months and completion of the necessary
delivery systems within several months thereafter, although no
assurances can be made.
Resource development expenses, which consist of costs
incurred in the land and water development of the Company's
landholdings, totaled $1.1 million for the nine months ended
December 31, 1996 as compared to $1.7 million for the fiscal
year ending March 31, 1996. The difference is primarily
attributable to the difference in the length of the periods
reported (nine months versus twelve months).
LANDFILL PREVENTION ACTIVITIES. The Company is engaged in
opposition to the proposed construction and operation of a landfill
proposed to be located adjacent to its Cadiz Valley property, and
has filed a lawsuit seeking, among other things, to set aside
regulatory approvals for the landfill project. See "Legal
Proceedings." During the nine months ended December 31, 1996,
expenses incurred in connection with activities in opposition to
the project, such as litigation costs and professional fees and
expenses totalled $0.4 million as compared to $1.9 million during
the fiscal year ending March 31, 1996. The decrease is due to the
fact that the lawsuit is in the discovery phase; however, management
believes expenses in the future will increase since the Company plans
to vigorously oppose the proposed project.
GENERAL AND ADMINISTRATIVE. General and administrative
expenses during both the nine months ended December 31, 1996 and
the fiscal year ended March 31, 1996 consisted primarily of
corporate operating expenses, professional fees and salaries.
These expenses increased by $3.1 million during the nine months
ended December 31, 1996 as compared to the fiscal year ending
March 31, 1996 primarily as a result of the Sun World
Acquisition and the addition of corporate and administrative
costs related to Sun World in the amount of $2.5 million for the
period September 14, 1996 through December 31, 1996. During the
period ended December 31, 1996, Cadiz was awarded and received
approximately $0.4 million as final payment toward full
reimbursement of its legal fees and costs incurred in defending
a legal action which was netted against the related legal fees
incurred.
DEPRECIATION. Depreciation totaled $0.9 million for the
nine months ended December 31, 1996 as compared to $0.8 million
for the fiscal year ended March 31, 1996. The increase is
primarily attributable to depreciation for the three and one
half month period from September 14, 1996 to December 31, 1996
related to the assets of Sun World which were acquired.
INTEREST EXPENSE. Net interest expense totaled $5.2
million during the nine months ended December 31, 1996 as
compared to $1.8 million during the fiscal year ended March 31,
1996. The following table summarizes the components of net
interest expense for the nine months ended December 31, 1996 and
the fiscal year ended March 31, 1996 (dollars in thousands):
Nine Months Fiscal Year
Ended Ended
December 31, March 31,
1996 1996
------ ------
Interest expense on
outstanding debt $ 5,193 $ 1,000
Amortization of
financing costs 746 841
Interest income (736) (54)
--------- ---------
$ 5,203 $ 1,787
========= =========
The increase in interest expense on outstanding debt
during the period ended December 31, 1996 is attributable to
the long-term debt acquired as part of the Sun World
Acquisition. Interest income increased due to the average
Sun World cash balance of over $30 million maintained during the
fourth calendar quarter of 1996.
INCOME TAX BENEFIT. An income tax benefit of $0.6
million arose during the nine months ended December 31, 1996
as a result of utilization of net operating loss
carryforwards.
YEAR ENDED MARCH 31, 1996 COMPARED TO YEAR ENDED MARCH 31, 1995
During the year ended March 31, 1996, Cadiz incurred a
net loss of $8.5 million as compared to a net loss of $4.6
million during the previous year. The following table
summarizes the net loss for both periods (in thousands):
March 31, March 31,
1996 1995
------ ------
Revenues $ 1,441 $ 543
--------- ---------
Costs and expenses:
Cost of sales 1,649 506
Resource development 1,680 1,039
Landfill prevention activities 1,919 -0-
General and administrative 1,826 1,525
Depreciation 833 737
Amortization 234 234
Interest expense, net 1,787 1,208
Gain on debt settlement -0- (115)
--------- ---------
Net Loss $ 8,487 $ 4,591
========= =========
REVENUES. Revenues were recognized from Cadiz' resource
development as a result of its entering into joint venture or
leasing arrangements with third party growers for the farming
of crops on its properties. A combination of gross crop proceeds
from the citrus orchard and both rent and percentage of gross crop
proceeds from the vineyard totaled $0.6 million and $0.5 million
for the years ended March 31, 1996 and 1995, respectively. Gross
crop proceeds from the additional acreage developed to row crops in
in the latter part of fiscal year 1995 totaled $0.8 million for the
year ended March 31, 1996, primarily from the harvest of honeydew
melons and seedless watermelon. Revenue from the produce brokerage
operation which commenced in May 1995 totalled $82,000 during
the 1996 fiscal year.
COST OF SALES. Cost of sales increased by $1.1 million
during the year ended March 31, 1996 from the prior year
primarily due to Cadiz' share of joint venture production
costs associated with the development of an additional 240
acres to row crops at the beginning of the 1996 fiscal year.
RESOURCE DEVELOPMENT. Resource development expenses
totaled $1.7 million for the year ended March 31, 1996 as
compared to $1.0 million for the year ended March 31, 1995.
As activities were taking place on multiple water projects
during the 1996 fiscal year, costs associated with development
increased as compared to the prior year when Cadiz was
involved in only the Cadiz water transfer project. In
addition, Cadiz developed an additional 240 acres to row
crops at the beginning of the 1996 fiscal year whereby
Cadiz was able to attract third party growers. Cadiz incurred
an increase in costs associated with management of the Cadiz
ranch with respect to this additional acreage. Also included
in resource development are costs associated with evaluation
of the potential acquisition of additional sites.
LANDFILL PREVENTION ACTIVITIES. During the year ended
March 31, 1996, expenses incurred in connection with
activities in opposition to the Rail-Cycle project totaled
$1.9 million, including litigation costs, professional fees
and expenses, and contributions in support of a local
coalition which actively opposed the Rail-Cycle Project.
GENERAL AND ADMINISTRATIVE. General and administrative
expenses during both periods consisted primarily of corporate
operating expenses, professional fees and salaries. These
expenses increased by $0.3 million during the year ended March
31, 1996 as compared to the prior year.
During the 1996 fiscal year Cadiz was engaged in, among
other things, the Sun World Acquisition; negotiations and/or
discussions with prospective purchasers regarding several of
Cadiz' water transfer projects; management of Cadiz' permanent
crops; and production of additional acreage to row crops in
its farming operation. In the prior year, by contrast,
activities pertained to evaluation of only one water transfer
project and management of Cadiz' permanent crops. As a result
of this increased level of activity, Cadiz has incurred a
corresponding increase in costs related to overhead,
professional fees, salaries and travel, among others.
DEPRECIATION. Depreciation totalled $0.8 million for the
year ended March 31, 1996 as compared to $0.7 million for the
prior year. The increase of $96,000 was primarily due to a
full year of depreciation on infrastructure improvements at
the Cadiz property, including the development of additional
irrigation wells which were completed during the fourth
quarter of fiscal 1995.
INTEREST EXPENSE. Net interest expense totalled $1.8
million during the year ended March 31, 1996 as compared to
$1.2 million during the same period in 1995. The following
table summarizes the components of net interest expense for
the years ended March 31, 1996 and 1995 (in thousands):
March 31, March 31,
1996 1995
------ -------
Interest expense on outstanding debt $ 1,000 $ 842
Amortization of financing costs 841 479
Interest income (54) (113)
--------- --------
Net interest expense $ 1,787 $ 1,208
========= ========
Interest expense on outstanding debt increased during the
year as a result of an increased level of borrowing and due to
slightly higher interest rates. Amortization of financing
costs increased as a result of debt issue costs incurred in
connection with Cadiz' March 1995 loan facility. Such costs
are amortized over the life of the debt arrangement, which
matures on January 31, 1997.
GAIN ON DEBT SETTLEMENT. In June 1994, Cadiz retired a
note payable in the amount of $0.3 million to an individual at
a discounted amount resulting in an extraordinary gain on
settlement of debt of $0.1 million. The note, which
originated in 1985, was scheduled to be retired with a balloon
payment in December 1996.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL DISCUSSION OF LIQUIDITY AND CAPITAL RESOURCES.
Pursuant to its business strategy, Cadiz has utilized its working
capital primarily for development purposes; that is, for purposes
designed to increase the long-term value of its properties. As Cadiz
has not received significant revenues from its development operations
to date, Cadiz has been required to obtain financing to bridge the gap
between the time development expenses are incurred and the time that a
revenue stream will commence. Accordingly, Cadiz has looked to outside
funding sources to address its liquidity and working capital needs.
Historically, Cadiz has addressed these needs primarily through secured
debt financing arrangements with its lenders, private equity placements
and the exercise of outstanding stock options. However, following the
completion of an offering by Sun World of $115.0 million in secured notes
as further discussed below, the Company believes it will be able to
meet its working capital needs without looking to outside funding
sources, although no assurances can be made. See "Current Financing
Arrangements" and "Equity Placements," below.
On September 13, 1996, Cadiz acquired all of the stock of
Sun World. The net purchase price of approximately $178
million consisted of the following: (i) assumption of $156
million of restructured debt with Sun World's existing lenders
(of which a principal reduction in the amount of $5.5 million
was made by Cadiz concurrent with the acquisition); (ii) $12
million to pay claims of Sun World's unsecured creditors as
determined during the reorganization process; (iii) $7 million
in cash and stock delivered both to previous holders of the
stock of Sun World upon transfer of stock to Cadiz and to
existing unsecured creditors in satisfaction of claims; and
(iv) $3 million of acquisition fees and costs.
On April 16, 1997 Sun World completed a private placement of
$115.0 million in secured notes (the "Sun World Notes"). The Sun
World Notes were sold through Smith Barney Inc., as initial purchaser,
to "qualified institutional buyers" (as defined in Rule 144A under
the Securities Act of 1933, as amended (the "Securities Act")) and
a limited number of institutional "accredited investors" (as defined
in the Securities Act). The proceeds from the issuance of the Sun
World Notes, when combined with Sun World's existing cash and cash
made available under a $30 million Revolving Credit Facility entered
into by Sun World concurrently with the issuance of the Sun World Notes,
were used to retire Sun World's existing indebtedness to John
Hancock Mutual Life Insurance Company ("John Hancock") and Caisse
Nationale de Credit Agricole, acting through its Grand Cayman branch
("Credit Agricole") as well as Cadiz' existing indebtedness to
Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A.("Rabobank")
(referred to hereinafter as the "Debt Restructuring").
Under Sun World's historical working capital cycle,
working capital is required primarily to finance the costs of
growing and harvesting crops, which occurs from January
through August with a peak need in June. Sun World harvests
and sells the majority of its crops during the period from May
through September, when it receives the majority of its
revenues. In order to bridge the gap between incurrence of
expenditures and receipt of revenues, large cash outlays are
required each year. Prior to the Debt Restructuring, Sun
World's cash balance was sufficient to provide for these
seasonal working capital requirements without the need for
additional outside funding. However, a substantial portion of
Sun World's cash on hand was used upon issuance of the Sun
World Notes to fund debt repayments. Therefore, Sun World will
depend upon the Revolving Credit Facility to meet its seasonal
working capital needs in 1997. See "Risk Factors - Seasonality"
and "--Significant Leverage and Working Capital Requirements."
After giving effect to the issuance of the Sun World
Notes and the application of the net proceeds therefrom,
Sun World has $120.0 million of indebtedness outstanding
and $30.0 million of borrowing availability under the
Revolving Credit Facility. Cadiz has approximately $10.0
million of indebtedness outstanding. See "Cadiz
Obligations," below. Management believes that the terms of
the Company's debt facilities following the issuance of the Sun
World Notes are more favorable to the Company than the terms of
the retired debt facilities. See "Outlook," below.
CURRENT FINANCING ARRANGEMENTS.
SUN WORLD OBLIGATIONS
The Sun World Notes, which were issued in the principal amount
of $115 million on April 16, 1997 and will mature on April 15, 2004,
accrue interest at the rate of 11-1/4% per annum. Interest only
is payable semi-annually on April 15 and October 15 of each year,
commencing October 15, 1997. The Sun World Notes are secured by a
first lien on substantially all of the assets of Sun World and its
subsidiaries, other than growing crops, crop inventories and accounts
receivable and proceeds thereof, which secure the Revolving Credit
Facility. The Sun World Notes are also secured by the guarantee
of Cadiz and the pledge by Cadiz of all of the stock of Sun World.
See "Risk Factors--Significant Leverage and Working Capital Requirements"
and "- Limitations on Access to Sun World Cash Flow and Dividends."
Sun World's $30 million Revolving Credit Facility matures in one
year and is guaranteed by Cadiz. Amounts borrowed under the Revolving
Credit Facility will accrue interest at either prime plus 1.50% or
LIBOR plus 2.50%, at Sun World's election, with an additional .50%
payable for advances exceeding 30% of eligible inventory or $9 million
of eligible inventory. The Revolving Credit Facility is secured by
growing crops, crop inventories and accounts receivable and proceeds
thereof. Rabobank acted as lead agent for, and also participated in,
the Revolving Credit Facility. See "Risk Factors--Significant
Leverage and Working Capital Requirements."
CADIZ OBLIGATIONS
Cadiz' primary current lender is ING Baring (U.S.) Capital
Corporation ("ING"). On March 31, 1997, ING purchased Cadiz'
previously outstanding obligations to Henry Ansbacher & Co., Ltd.
("Ansbacher") of approximately $9.7 million. Concurrently with
such purchase, the maturity date of the ING obligations was extended
to April 30, 1998 (with the interest rate of such obligations to be
adjusted as of May 1, 1997 to LIBOR plus 200 basis points, payable
at LIBOR only semi-annually, with the remaining accrued interest
added to principal), and Cadiz issued to ING Warrants to purchase
75,000 shares of Cadiz Common Stock, exercisable for five years
beginning on April 30, 1997 at an exercise price equal to the average
daily closing price of the Company's Common Stock over a ten trading
day period ending on April 29, 1997. ING has also granted to Cadiz
the right to obtain two additional one-year extensions. Upon exercise
of the first and second extension, Cadiz would be required to issue
certain additional warrants to ING and the interest rate would be
further adjusted. Currently, ING holds a senior deed of trust on
substantially all of Cadiz' non-Sun World related property.
As the Company continues to aggressively pursue its
business strategy, additional financing specifically in
connection with the Company's water projects will be required.
The nature of such additional financing for the water transfer
and/or storage projects will depend upon how the development
and ownership of each project is ultimately structured, and
how much of each project's funding will be the Company's
responsibility. Should the Company determine that it will be
able to maximize its profit potential through construction and
ownership of the water delivery and/or storage systems used in
the project, the Company will be required to obtain long-term
project financing. Based upon the results of analyses
performed by an investment banking firm retained by the
Company, management believes that several alternative
long-term financing arrangements are available to the Company
which will be further evaluated once funding responsibility
and ownership alternatives are determined.
EQUITY PLACEMENTS. During the nine months ended December
31, 1996, Cadiz utilized equity placements to fund its Sun
World Acquisition. The total cash requirements of Cadiz
related to the Sun World Acquisition were funded from: (i) the
issuance by Cadiz of $27.6 million of newly authorized Series
A Preferred; (ii) the issuance by Cadiz of $7.6 million of
newly authorized Series B Preferred; (iii) the issuance by
Cadiz $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 April 22, 1997, 90 shares of Series
B Preferred and no shares of Series C Preferred remain
outstanding. The Series B and C Preferred rank senior and
prior to Cadiz' Common Stock and on a parity with any other
class or series of Preferred Stock. Except as provided by
law, holders are not entitled to vote upon any matter
submitted to a vote of Cadiz' stockholders.
WORKING CAPITAL RESOURCES. As noted above, subsequent to
the Sun World Acquisition, the Company adopted a classified
balance sheet thereby requiring the distinction between
current assets and long-term assets and current liabilities
and long-term liabilities. As a result, on a consolidated
basis, the Company had, at December 31, 1996, working capital
of $44.8 million, cash of $33.3 and a current ratio of
approximately 3.5 to 1.0.
The following table summarizes the Company's cash
position for the periods indicated (amounts in thousands):
Nine
months Year
ended ended
December 31, March 31,
1996 1996
------ ------
Net cash used for continuing
operating activities $ (66) $ (5,736)
Net cash provided by (used for)
investing activities 6,656 (2,357)
Net cash provided by
financing activities 21,564 10,792
--------- ---------
Net increase in cash 28,154 2,699
Cash and cash equivalents,
beginning of period 5,153 2,454
--------- ---------
Cash and cash equivalents,
end of period $ 33,307 $ 5,153
========= =========
CASH USED FOR OPERATING ACTIVITIES. Cash used for
operating activities totalled $66,000 for the nine months
ended December 31, 1996 as compared to cash used for
continuing operating activities of $5.7 million for the fiscal
year ended March 31, 1996. The decrease in cash used for
operating activities primarily resulted from the decrease in
accounts receivable and inventories of $12.4 million
attributable to the seasonality of Sun World's agricultural
operations offset by the decrease in accounts payable of $7.2
million (which includes $11.6 million paid to satisfy certain
of Sun World's unsecured creditors pursuant to Sun World's
Plan of Reorganization). The balance of the net cash used for
operating activities resulted from the increased activity
level of Cadiz during the nine months ended December 31, 1996.
The Company currently pays no income taxes. As of
December 31, 1996, the Company has a net operating loss ("NOL")
carryforward of approximately $60.8 million for federal and
$35.5 million for state income tax purposes. Such
carryforwards expire in varying amounts through the year 2012.
In accordance with the Tax Reform Act of 1986, NOL utilization
may be subject to an annual limitation. As a result at
December 31, 1996, approximately $15.4 million of the federal
NOL is currently available to offset federal taxable income in
any future years, while the balance is available subject to
annual limitations. No annual limitations apply to the state
NOL carryforwards which expire in various amounts through the
year 2000.
CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES. Cash
provided by investing activities totalled $6.7 million during
the nine months ended December 31, 1996 as compared to cash
used for investing activities of $2.4 million during the
fiscal year ended March 31, 1996. Although Cadiz invested
$1.4 million in the purchase of land, property, plant and
equipment and in furtherance of its water transfer and storage
projects, Sun World also received proceeds of $12.4 million
from the disposal of underproducing assets through an asset
disposal program. In addition, the net cash used in
connection with the Sun World Acquisition was $4.5 million.
CASH PROVIDED BY FINANCING ACTIVITIES. Financing
activities provided $21.6 million for the nine months ended
December 31, 1996 as compared to $10.8 million during the
fiscal year ended March 31, 1996. Net proceeds from the
issuance of Common Stock, Preferred Stock and the exercise of
previously outstanding stock options totaled $37.8 million
during the nine months ended December 31, 1996 while dividends
paid on the Preferred Stock totaled $99,000. Principal
payments on short- and long-term debt totaled $17,000 and $16.4
million, respectively, for the nine months ended December 31,
1996.
OUTLOOK
With the issuance of the Sun World Notes, the Company
believes that, based upon current levels of operations and anticipated
growth, Sun World can adequately service its indebtedness and
meet its seasonal working capital needs utilizing available
internal cash and the Revolving Credit Facility.
The Sun World Indenture and agreements between Cadiz and
its principal current lender restrict the amount of cash that can
flow from Sun World to Cadiz and vice versa. See "Risk Factors--
Limitations on Access to Sun World Cash Flow and Dividends."
In the short-term, Cadiz expects to meet its ordinary
working capital needs through a combination of quarterly
management fee payments from Sun World, payments from Sun
World under an agricultural lease whereby Sun World now
operates the Company's 1,600 acres of developed agricultural
property at Cadiz, California, and the possible exercise of
outstanding stock options. In addition, there are provisions
in the Sun World Indenture allowing for certain additional
payments to be made from Sun World to Cadiz, subject to Sun
World meeting specific tests and ratios.
As the Company is actively pursuing the development of
its water resources, it is seeking the finalization of the
regulatory approvals needed to commence construction of a
water delivery and/or storage project at Cadiz. Once the
lengthy regulatory review process is finalized and
construction of the necessary delivery and/or storage system
has commenced, the Company anticipates generating a revenue
stream within less than a year thereafter which will be
sufficient to meet the then existing operating requirements of
the Company, although no assurances can be given.
Concurrently with the regulatory review process, the Company
is also negotiating the terms of water delivery and/or storage
arrangements with various California water agencies, which
include issues such as financing, pricing concepts and
formulas and ownership of the pipeline and the delivery and/or
storage system.
In addition to the development of its water resources,
the Company is actively involved in further agricultural
development and reinvestment in its landholdings. Such
development will be systematic and in furtherance of the
Company's business strategy to provide for maximization of the
value of its assets.
With the issuance of the Sun World Notes on April 16, 1997,
annual maturities of long-term debt outstanding are as follows:
1997 - $1,397,000; 1998 - $10,125,000; 1999 - $386,000; 2000 - $433,000;
2001 - $445,000; and 2002 and thereafter - $116,602,000. At December 31,
1996, prior to the issuance of the Sun World Notes, annual maturities
of long-term debt outstanding excluding $124,000 representing the
unamortized portion of warrants were as follows: 1997 - $4,877,000;
1998 - $24,253,000; 1999 - $9,374,000; 2000 - $11,398,000; 2001 -
$11,410,000, and 2002 and thereafter - $92,676,000.
Since the Company's inception, inflation has not had a
material impact either on the costs of materials required in
the development of property and/or in labor costs. Similarly,
the value of the Company's real property has not been
materially impacted by inflation. In the event the rate of
inflation should accelerate in the future, the Company
believes the increase in the value of its real property will
exceed any increases in costs attributable to inflation.
BUSINESS
The long-term strategy of Cadiz Land Company, Inc. (the
"Company") is to acquire and develop water-related land and
agricultural assets. The Company has created an integrated and
complementary portfolio of landholdings, water resources, and
agricultural operations located within central and southern
California which either possess sizable assured supplies of
water or can, in future years, utilize water supplied from other
Company properties. Management believes that, with both the
increasing scarcity of water supplies in California and the
increasing demand for water, the Company's access to water will
provide it with a competitive advantage both as a major
agricultural concern and as a supplier of water which will lead
to continued appreciation in the value of the Company's
portfolio.
In 1996, the Company significantly enhanced this portfolio
through its acquisition of Sun World International, Inc. ("Sun
World"). The Sun World acquisition has made the Company one of
the largest fully integrated agricultural companies in
California. The Sun World acquisition added to the Company's
portfolio more than 17,000 acres of prime agricultural land,
packing facilities, marketing expertise, proprietary agricultural
products and the highly regarded Sun World brand name.
Sun World ships approximately 75 varieties of fresh produce
to all 50 states in the United States and exports fresh fruits
and vegetables to over 30 foreign countries. Produce grown or
distributed by Sun World reaches more than 600 accounts
including supermarket retailers, food service entities,
warehouse clubs and international trading companies throughout
North America, Europe and Pacific Rim countries. For the twelve
months ended December 31, 1996, Sun World recorded revenues of
$100.4 million.
The acquisition of Sun World also added valuable water
rights to the Company's existing water resource development
operations. In addition to its Sun World properties, the
Company holds more than 39,000 acres of land in eastern San
Bernardino County. These landholdings are underlain by
excellent groundwater resources and are located adjacent to the
major aqueduct systems of central and southern California, and
in close proximity to the Colorado River. The Company expects
to utilize these resources to participate in a broad variety of
water transfer and storage projects, including the transfer of
surplus water to public agencies which require supplemental
sources of water. The Company is currently in discussions with
several public water agencies regarding transfer and storage
agreements, although no such agreements have been reached. See
"Water Resource Development - Cadiz Water Transfer and Storage
Project."
The Company continually seeks to develop and manage its
land, water and agricultural resources for their highest and
best use. Agricultural development will enable the Company to
maximize the value of its landholdings while generating cash
flow. The Company will continue to pursue opportunities for use
of its water resources, both for internal operations and to
relieve water shortages in other portions of southern California.
General Development of Business
- -------------------------------
As part of its current business plan, the Company's land
acquisition, development activities and agricultural
operations are conducted for the purpose of enhancing the
long-term appreciation of its properties. See "Narrative
Description of Business," below.
On September 13, 1996, the Company acquired all of the
stock of a reorganized Sun World pursuant to a consensual plan
of reorganization (Debtors' Modified Fourth Amended
Consolidated Plan of Reorganization dated June 3, 1996
(Modified)) which was confirmed by the U.S. Bankruptcy Court
at a hearing on July 12, 1996 (the "Plan of Reorganization")
for a net purchase price of approximately $178 million (the
"Sun World Acquisition"). Sun World and certain subsidiaries
of Sun World had filed voluntary petitions for relief under
Chapter 11 of the Bankruptcy Code on October 3, 1994 after
debt restructuring negotiations with Sun World's existing
lenders failed.
The net purchase price of approximately $178 million
consisted of the following: (i) assumption of $156 million of
restructured debt with Sun World's existing lenders (of which
a principal reduction in the amount of $5.5 million was made
by Cadiz concurrent with the acquisition); (ii) $12 million to
pay claims of Sun World's unsecured creditors as determined
during the reorganization process; (iii) $7 million in cash
and stock delivered both to previous holders of the stock of
Sun World upon transfer of stock to Cadiz and to existing
unsecured creditors in satisfaction of claims; and (iv) $3
million of acquisition fees and costs.
Subsequent to the Sun World Acquisition, the Company
changed its fiscal year end from March 31 to December 31 in
order to align the Company's year end with that of Sun World.
In addition to Sun World, over the past 13 years the
Company has acquired more than 39,000 acres in various
portions of eastern San Bernardino County, California.
Although located in desert terrain, these landholdings are
underlain by groundwater resources having active recharge of
high quality. In addition, management believes the Company's
landholdings have excellent potential for agricultural
development and other uses, including municipal, recreational,
and industrial applications.
Pursuant to its business strategy, the Company has
utilized its working capital primarily for development
purposes; that is, for purposes designed to increase the long-
term value of its properties. A portion of these expenditures
has related to the planned Cadiz Valley and Piute Valley
groundwater transfer and storage projects. See "Narrative
Description of Business - Water Resource Development," below.
In addition, agricultural development and operations continue
to be an integral part of the Company's ongoing business
strategy, maximizing the value of its landholdings while
generating cash flow. See "Narrative Description of Business
- - Agricultural Operations," below.
The Company's Sun World Acquisition is an integral part
of this strategy. Sun World has added to the Company's
portfolio approximately 17,300 acres of prime agricultural
land in the San Joaquin and Coachella Valleys, increasing the
Company's total landholdings to approximately 57,000 acres.
See "Properties," below.
In May 1992, the Company's shareholders approved the
reincorporation of the Company into Delaware under the name
Cadiz Land Company, Inc. As a part of the reincorporation,
the Company's Common Stock was reverse split on a one-for-five
basis, giving each shareholder of the Company one share of
Cadiz Land Company, Inc. stock for every five shares of
Pacific Agricultural Holdings, Inc. stock held at the
time of the reincorporation.
Financial Information About Industry Segments
- ----------------------------------------------
During its nine months ended December 31, 1996, the
Company operated in one industry segment: resource development.
See Consolidated Financial Statements. Also, see "Management's
Discussion and Analysis of Financial Condition and Results of
Operations."
Narrative Description of Business
- ----------------------------------
Pursuant to its business strategy, the Company
continually seeks to develop and manage its portfolio of land,
water and agricultural resources for their highest and best
use. The development and management activities of the Company
are currently focused on agricultural operations (primarily
through its wholly-owned Sun World subsidiary) and water
resource development. Agricultural development will enable
the Company to maximize the use of its landholdings while
generating cash flow. The Company will continue to pursue
opportunities for the use of its water resources, both for
internal operations and to relieve water shortages in other
portions of Southern California.
AGRICULTURAL OPERATIONS
With the Sun World Acquisition, the Company has become
one of California's largest vertically integrated
agricultural companies which combines an extensive research
and development program, year round sourcing, farming and
packing activities and strong marketing capabilities. For the
twelve months ended December 31, 1996, Sun World recorded
revenues of $100.4 million.
PRODUCT LINE. Sun World ships 75 different varieties of
fresh fruits and vegetables to all 50 States and to more than
30 foreign countries. Sun World is a leading grower and marketer
of table grapes, seedless watermelons, colored sweet peppers,
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 (TM) table grapes,
Black Diamond (TM) plums, Sun World Seedless (R) watermelons, Star
Sweet (R) super red grapefruit, Honeycot (R) apricots, Amber Crest (R)
peaches and Sun World sweet colored peppers. These products
evolved through a combination of internal development and
acquisition. Sun World's research and development center is
dedicated to developing additional high value proprietary
varieties. See "Proprietary Product Development," below.
FARMING OPERATIONS. Sun World's farming operations
produce approximately 7 million units of fruits and vegetables
annually. Its principal agricultural lands are located in the
San Joaquin and Coachella valleys of California. See "Properties,"
below.
Sun World properties are primarily dedicated to producing
permanent commercial crops and, to a lesser extent, annual (or
row) crops. Additionally, over 1,300 acres are currently
utilized for developing crops (e.g. vines and trees that have
not yet reached a commercial maturity). Subsequent to the Sun
World Acquisition, the Company developed a crop plan that
provided for the removal of certain under-performing permanent
crops and the continued development of certain proprietary
varieties of grapes and tree fruit. Given the Company's
current crop allocation plan, it is now redeploying marginally
productive acreage to produce more varieties of crops which
are available for delivery at peak pricing windows throughout
the year.
Under an agricultural lease entered into concurrently
with the Sun World Acquisition, Sun World also operates the
Company's 1,600 acres of developed agricultural property at
Cadiz. The Company believes that its Cadiz Valley
agricultural operations will benefit by virtue of the ability
of the Company to grow, pack and market the Cadiz produce
under the Sun World label and to market it to Sun World's
worldwide customer base. The financial statement impact of
this intercompany operating lease is eliminated in consolidation.
PACKING AND MARKETING OPERATIONS. In addition to
merchandising its own products, Sun World provides marketing
and packing services to third party growers. For third party
growers, Sun World provides three key benefits: (i) Sun
World's brand name, proprietary products and reputation with
wholesalers resulting in a significant pull through effect;
(ii) a full complement of services that include packing,
marketing and sales; and (iii) a dedicated sales force
servicing over 600 customers throughout the world.
Sun World's packing facilities handle approximately 10
million units of produce annually. These facilities provide
harvesting, packing, cooling and shipping services for Sun
World production, as well as for other commercial clients.
Currently, Sun World owns four facilities, three of which are
located in the Coachella Valley and one of which is located
in the San Joaquin Valley. See "Properties," below.
Sun World's vertically integrated operations enable it to
offer the market a continuous stream of new, specialty
products which receive a market premium coupled with a large
basket of other produce staples. As a significant grower, Sun
World is able to manage the quality of its own product line,
and as a significant packer/marketer, Sun World works with
other growers to ensure product quality through packing and
distribution. As a result, on average, the Company sells 12
to 13 million units annually with an average wholesale value
of approximately $120 million.
Sun World's sourcing, both external and internal, is
diversified geographically. Sun World's owned and leased
farming operations are located throughout California from the
Coachella Valley in the south to central California's San
Joaquin Valley as well as operations near the coast. Sun
World sources externally produced product from throughout
California, from other areas of the United States, and from
international sources. This geographic diversification not
only reduces the impact that unfavorable weather conditions
and infestations could have on Sun World's packing and
marketing operations but also provides Sun World with a longer
selling season for many crops since the harvests occur at
different times. In addition, geographic diversification also
allows Sun World the ability to provide the quality and
breadth of product throughout the year which is being demanded
by retailers.
Sun World's customer base consists of more than 600
accounts including supermarket retailers, food service
entities, warehouse clubs, and international trading companies
located in approximately 30 countries. Domestic customers
include national retailers such as Safeway Stores and American
Stores; club stores, including PriceCostco and Sam's; and food
service distributors, including Sysco and Alliant.
Approximately 10% of Sun World's products are marketed outside
of the United States in Europe, Australia, Japan, Hong Kong,
Singapore, Malaysia and Taiwan. Only one national retailer
(representing approximately 15% of calendar year 1996 gross
sales made by Sun World) accounts for more than 10% of Sun
World's revenues.
PROPRIETARY PRODUCT DEVELOPMENT. Sun World has a long
history of product innovation, and its research and
development center maintains a fruit breeding program that has
introduced dozens of proprietary fruit varieties in the last
five years. Recent product successes include the Black
Diamond (TM) plum, the Amber Crest (R) peach and the Honeycot (R)
apricot. There are several other promising grape and tree fruit
varieties which are scheduled for commercial planting and production
in the near future.
Sun World utilizes approximately 235 acres for its research and
development center and crop experimentation. The research and development
center facility houses tissue culture rooms, growth rooms, four greenhouses,
and over 200 acres of experimental growing crops.
As a result of over 20 years of research and development, Sun
World holds rights to more than 600 patents and trademarks around the
world. The patent registrations exist in most major fruit producing
countries and the trademarks are held in both fruit producing and
consuming regions. Sun World's patents have varying expiration dates;
however, the expiration of any individual patent will not have a material
effect upon Sun World's operations.
Additionally, Sun World has a 50% ownership interest in American
Sunmelon, a partnership engaged in the proprietary development, production
and marketing of seedless watermelon seed. American Sunmelon generated
net income of approximately $3.5 million for calendar year 1996.
WATER RESOURCE DEVELOPMENT
The increasing scarcity of water supplies in California will
lead to increasing dependence on water transfer and storage projects
within the state. The Company's portfolio of water resources, located
in close proximity to the major aqueduct systems of central and
southern California such as the State Water Project, the Colorado
River Aqueduct, and the Colorado River, provides the Company with the
opportunity to participate in a variety of water banking, exchange and
transfer and storage projects in partnership with regional public
water agencies.
CADIZ WATER TRANSFER AND STORAGE PROJECT. The Company's 27,400
acres in the Cadiz and Fenner Valleys of eastern California (the "Cadiz
Property") are underlain by a substantial high quality groundwater basin.
This groundwater is recharged by rain and snowfall within a catchment
area of nearly 1,300 square miles. Average annual recharge is estimated
by independent experts to be in the range of 20,000 to 30,000 acre-feet.
See "Properties - The Cadiz Property."
Pursuant to an Environmental Impact Report ("EIR") and land use
approvals by San Bernardino County, the Company is authorized to pump
approximately 30,000 acre-feet of groundwater per year for irrigation
of its Cadiz Valley property. An acre-foot is 326,000 gallons, or
enough for approximately two families for one year. The Company
currently uses approximately 6,000 acre-feet per year to irrigate
its Cadiz Valley agricultural development and planned near-term
development will likely require no more than 10,000 acre-feet per
year. As a result, the Company has the ability to transfer groundwater
- - surplus to its present and near-term needs - to public agencies
which require supplemental sources of water. 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 progress made to date.
The Company is in discussions regarding transfer and storage agreements
with several public water agencies. These agreements, when complete, will
determine pricing formulas, financing and ownership of the facilities
constructed to deliver and store the water.
PIUTE AND OTHER TRANSFER AND STORAGE PROJECTS. The Company
has also commenced water development operations at its 7,300 acre Piute
property, which is located in eastern San Bernardino County approximately
15 miles from the resort community of Laughlin, Nevada and about 12 miles
from the Colorado River town of Needles, California. 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 "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. See "Risk Factors - Seasonality"
and "-Significant Leverage and Working Capital Requirements."
In connection with the water resource development
activities of the Company, revenues are not expected to be
seasonal in nature. The Company does not expect that
contracts entered into for the transfer or storage of water
will provide for revenue payments varying significantly from
season to season.
COMPETITION
The agricultural business is highly competitive. Sun
World's competitors include a limited number of large
international food companies, as well as a large number of
smaller independent growers and grower cooperatives. No
single competitor has a dominant market share in this industry
due to the regionalized nature of these businesses. Sun World
utilizes brand recognition, product quality, harvesting in
favorable product windows, effective customer service and
consumer marketing programs to enhance its position within the
highly competitive fresh food industry. Consumer and
institutional recognition of the Sun World trademark and
related brands and the association of these brands with high
quality food products contribute significantly to Sun World's
ability to compete in the market for fresh fruit and
vegetables.
The Company faces competition for the acquisition,
development and sale of its properties from a number of
competitors, some of which have significantly greater
resources than the Company. The Company may also face
competition in the development of water resources associated
with its properties. Since California has scarce water
resources and an increasing demand for available water, the
Company believes that price and reliability of delivery are
the principal competitive factors affecting transfers of water
in California.
EMPLOYEES
As of December 31, 1996, the Company employed a total of
985 full-time employees. Sun World from time to time engages
various part time and seasonal employees, with a seasonal high
of approximately 2,500 part time employees. Approximately 119 of
the Company's employees are represented by a labor union pursuant
to a contract that expires in 1999. Generally, the Company believes
that its employee relations are good.
REGULATION
Certain areas of the Company's operations are subject to
varying degrees of federal, state and local laws and
regulations. The Company's agricultural operations are
subject to a broad range of evolving environmental laws and
regulations. These laws and regulations include the Clean Air
Act, the Clean Water Act, the Resource Conservation and
Recovery Act, the Federal Insecticide, Fungicide and Rodenticide
Act, Comprehensive Environmental Response and the Compensation
and Liability Act. Compliance with these foreign and domestic
laws and related regulations is an ongoing process which is not
currently expected to have a material effect on the Company's
capital expenditures, earnings or competitive position.
Environmental concerns are, however, inherent in most major
agricultural operations, including those conducted by the Company,
and there can be no assurance that the cost of compliance with
environmental laws and regulations in the future will not be material.
The Company's food operations are also subject to
regulations enforced by, among others, the U.S. Food and Drug
Administration and state, local and foreign equivalents and
to inspection by the U.S. Department of Agriculture and other
federal, state, local and foreign environmental and health
authorities. Among other things, the U.S. Food and Drug
Administration enforces statutory standards regarding the
safety of food products, establishes ingredients and
manufacturing procedures for certain foods, establishes
standards of identity for foods and determines the safety of
food substances in the United States. Similar functions are
performed by state, local and foreign governmental entities
with respect to food products produced or distributed in their
respective jurisdictions. Existing environmental regulations
have not, in the past, had a materially adverse effect upon
the operations of the Company, and the Company believes that
existing environmental regulations will not, in the future,
have a materially adverse effect upon its operations. There
can be no assurances, however, as to the effect of any
environmental regulations which may be adopted in the future.
See "Risk Factors - Environmental Matters" and "-Regulation."
As the Company proceeds with the development of its
properties, including related infrastructure, the Company will
be required to satisfy various regulatory authorities that it
is in compliance with the laws, regulations and policies
enforced by such authorities. Groundwater development, and
the export of surplus groundwater for sale to single entities
such as public water agencies, are not subject to regulation
by existing statutes, other than general environmental
statutes applicable to all development projects. Although
applicable laws, regulations and policies have not had a
materially adverse effect upon the ability of the Company to
develop its Cadiz or other properties to date, management
cannot predict with certainty what requirements, if any, may
be imposed by regulators upon future development. In
addition, the time and costs associated with obtaining
regulatory approvals for resource development are significant,
and there can be no assurance that the Company will receive
desired approvals for future development plans. See "Risk
Factors - Regulatory Approvals."
PROPERTIES
The Company currently leases its executive offices in Rancho
Cucamonga, California; however, within the next several months,
the Company is relocating these offices to Los Angeles County.
The Company also maintains a development office in San Bernardino,
California. Sun World owns its main packing facilities and
administrative offices in Bakersfield, California and owns 3
packing facilities and leases its sales offices in Coachella,
California. The Company and each of its subsidiaries believe
that their property and equipment are generally well maintained,
in good operating condition and adequate for their present needs.
The following is a description of the Company's
significant properties.
THE CADIZ PROPERTY
In 1984, the Company conducted an investigation of the
feasibility of the agricultural development of land located in
the Mojave desert near Cadiz, California, and confirmed the
availability of prime quality water in commercial quantities
appropriate for agricultural development. Since 1985, the
Company has acquired over 27,000 acres in the Cadiz vicinity.
The Company has determined that the groundwater basin
which underlies the Cadiz property contains more water than is
needed for both the present and projected agricultural
development requirements of the property. The Company
therefore intends to develop a water banking and transfer
program in connection with this property. See "Business -
Narrative Description of Business - Water Resource Development."
In November 1993, the San Bernardino County Board of
Supervisors unanimously approved a General Plan Amendment
establishing an agricultural land use designation for 9,600
acres at Cadiz for which 1,600 acres have been developed and
are leased to Sun World. This Board action represented the
largest land use approval on behalf of a single property
holder in the County's known history. This action also
approved permits to construct infrastructure and facilities to
house as many as 1,150 seasonal workers and 170 permanent
residents (employees and their families) and allows for the
withdrawal of more than 1,000,000 acre-feet of groundwater
from the Company's underground water basin.
Substantially all Cadiz acreage is held in fee directly by the Company.
SUN WORLD PROPERTIES
FARM PROPERTIES. Sun World owns approximately 17,300
acres and leases approximately 2,100 acres of improved land in
central and southern California. The majority of this land is
used for the cultivation of permanent and annual crops and
support activities, including packing facilities.
Sun World owned farming property is divided between five
distinct geographic regions: Madera, Bakersfield and Arvin
(located within the San Joaquin Valley), Coachella (located in
the state's southeastern corner near Palm Springs) and Blythe
(located approximately 100 miles east of the Coachella Valley
adjoining the Colorado River).
PACKING AND HANDLING FACILITIES. Sun World owns four
packing and handling facilities, three of which are located in
the Coachella Valley and one of which is located in the San
Joaquin Valley at Kimberlina, near Bakersfield.
The Kimberlina facility, located on an 83 acre parcel
owned by Sun World, consists of 95,000 square feet of cold
storage areas and 50,000 square feet for tree fruit packing
(including two highly automated tree fruit production lines).
An additional 14,300 square feet is devoted to office space.
Sun World's primary Coachella Valley facility consists of
two independent buildings located on 22 acres of industrial
commercial zoned land in Coachella, California, two miles
south of Indio. The 22 acres consists of 5 acres of buildings
and improvements, 6 acres of packing, and 11 acres of open
land. One building is used primarily for the packing of
citrus, for receiving table grapes, for cold storage and for
office space. The other building is used primarily for
receiving, cooling and storing table grapes.
Sun World's other operating facility in Coachella
consists of one building on 4 acres of land and is used
primarily for packing watermelons and citrus and for storage.
Currently, the third Coachella facility is not being used for
operations and is held for sale.
All of the Sun World properties are subject to
encumbrances for the benefit of the holders of the Sun World
Notes, which were issued in the aggregate principal amount of
$115 million on April 16, 1997. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources - Current Financing Arrangements."
THE PIUTE PROPERTY
The Piute property consists of approximately 7,300 acres
and is located approximately 60 miles east of Cadiz and
approximately 15 miles west of the Colorado River and
Laughlin, Nevada, a small, fast growing town with hotels,
casinos and water recreation facilities. The Piute property
was identified for acquisition by the Company by a combination
of the satellite imaging and geological techniques which were
used by the Company to identify water at Cadiz.
The Piute acreage adjoins Highway 95, which is a direct
route to Las Vegas, approximately 60 miles north. The Santa
Fe Railroad passes through the land and Interstate 40 is
approximately 12 miles to the south. The property is held by
the Company in fee title as to approximately 3,600 acres, with
the remaining acreage under option.
The Company has commenced the development of the water
resources of this property. See "Business - Narrative Description
of Business - Water Resource Development."
OTHER PROPERTIES
In addition to the Cadiz and Piute properties, the
Company owns approximately 4,200 additional acres in the
Mojave Desert as to which development has not yet commenced.
The Company will continue to seek to acquire additional
properties both in Southern California desert regions and
elsewhere which are believed to be suitable for development.
All of the Company's non-Sun World fee property is subject
to encumbrances in favor of the Company's current primary lender
as security for a loan with an outstanding balance of approximately
$9.7 million as of April 22, 1997. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources - Current Financing Arrangements."
LEGAL PROCEEDINGS
In November 1995, the San Bernardino County Board of
Supervisors certified an Environmental Impact
Report/Environmental Impact Statement ("EIR/EIS"), and
approved a Conditional Use Permit for the proposed
construction and operation of a substantial landfill on the
shore of Bristol Lake near Amboy, California (the "Rail-Cycle"
Project). The general partner of Rail-Cycle is controlled by
WMX Technologies, Inc. (formerly Waste Management, Inc.). The
Rail-Cycle Project would be located within a few miles of land
owned by the Company at Cadiz, California, which the County of
San Bernardino has designated for agricultural use in its
General Plan.
The Company has vigorously opposed the Rail-Cycle Project
on a number of grounds. In December 1995, an action styled
Cadiz Land Company, Inc. vs. County of San Bernardino, et al.
Case No. BCV 02341 was filed by the Company in Superior Court
in San Bernardino County. The action challenges the various
decisions by the County of San Bernardino relative to the
Rail-Cycle Project. Named in this action, in addition to the
County of San Bernardino, were the Board of Supervisors of the
County of San Bernardino, three individual members of the
Board of Supervisors, an employee of the County, and
Rail-Cycle. On February 1, 1996, Rail-Cycle and the County
removed the case to Federal District Court for the Central
District of California (Case No. CV-96-740-JGD [BQRS]).
However, the case has subsequently been remanded back to the
San Bernardino Superior Court. The Company alleges that the
actions of the County of San Bernardino did not comply with
the guidelines prescribed by the California Environmental
Quality Act and violated state planning and zoning laws. The
action seeks to set aside the county certification of the
EIR/EIS and approval of the proposed Rail-Cycle Project. The
Company continues to believe the proposed Rail-Cycle Project,
if constructed and operated as currently designed, poses
environmental risks both to the Company's agricultural
operations at Cadiz and to the groundwater basin underlying
the Cadiz property. Accordingly, the Company intends to
pursue a claim for damages against the County of San
Bernardino and Rail-Cycle and the action seeks compensatory
damages in excess of $75 million. The action is currently in
the discovery phase. The court has set July 11, 1997 to
commence a hearing on the Company's land use and regulatory
claims. A trial on the issue of the Company's monetary
damages will be scheduled at a later date. The Company
intends to continue vigorously prosecuting its claims. See
"Risk Factors - Potential Adverse Effect of Rail-Cycle Project
on the Company."
In the normal course of its agricultural operations, Sun
World handles, stores, transports and dispenses products
identified as hazardous materials. Regulatory agencies
periodically conduct inspections and, currently, there are no
pending claims with respect to hazardous materials. See "Risk
Factors - Environmental Matters" and "-Regulation."
The Company is involved in other legal and administrative
proceedings and claims. In the opinion of management, the
ultimate outcome of each proceeding or all such proceedings
combined will not have a material adverse impact on the
financial position of the Company.
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of April 22, 1997, the ownership of
Common Stock of the Company by each stockholder who is known by the Company
to own beneficially more than 5 percent of the outstanding Common Stock,
by each director, by each executive officer listed in the Summary
Compensation Table below, and by all directors and officers as a group.
Amount and Nature of Percent
Name and Address Beneficial Ownership of class
- ------------------------------ ----------------------- ------------
Morgan Stanley 2,518,560(1) 9.98%
Group, Inc. et al.
1251 Avenue of the Americas
New York, NY 10020
Fidelity International
Limited, et al. 2,434,067(2) 9.96%
Pembroke Hall
42 Crow Lane
Hamilton, Bermuda
The Capital Group Companies, Inc. 1,415,000(3) 5.79%
333 South Hope Street
Los Angeles, CA 90071
Dwight W. Makins 425,000(4) 1.72%
Beaurepaire House
Bramley, Tadley
Hampshire RG26 5EH
United Kingdom
Keith Brackpool 1,113,893(5) 4.40%
10535 Foothill Blvd., Suite 150
Rancho Cucamonga, CA 91730
J.F.R. Hammond 927,007(6) 3.71%
10 Compton Terrace
London N1 2UN
United Kingdom
Stephen D. Weinress 200,722(7) 0.82%
3333 Michelson Drive
Irvine, CA 92715
Susan K. Chapman 127,700(8) 0.52%
10535 Foothill Blvd., Suite 150
Rancho Cucamonga, CA 91730
Timothy J. Shaheen 155,000(9) 0.63%
P.O. Box 80298
Bakersfield, CA 93380
Stanley E. Speer 150,000(10) 0.61%
P.O. Box 80298
Bakersfield, CA 93380
All Directors and Officers
as a Group 3,099,322(4)(5)(6)(7) 11.58%
(7 individuals) (8)(9)(10)
(1) According to information provided to the Company, Morgan
Stanley Group, Inc. ("MS Group") may be deemed to be the
indirect beneficial owner of 1,696,753 shares of Common
Stock, arising from the indirect beneficial ownership of
such shares by Morgan Stanley Asset Management Limited
("MSAM"), a subsidiary of MS Group. The address of MSAM
is 25 Cabot Square, Canary Wharf, London E14 4QA,
England. All such shares are held by MSAM in its
capacity as an Investment Adviser, and MS Group and MSAM
share voting and investment power with respect to the
shares which they may be deemed to beneficially own. MS
Group and MSAM each disclaim beneficial ownership of
such shares pursuant to Rule 13d-4 under the Securities
Exchange Act of 1934. MSAM is also the holder of 3,000
shares of Convertible Series A Preferred Stock ("Series
A Preferred") issued in an institutional private
placement which provided financing for the Company's
acquisition of Sun World. The Series A Preferred is
convertible into 800,000 shares of Common Stock at a
conversion price of $3.75 per share. Also includes
dividends paid on Series A Preferred in common stock.
(2) Fidelity International Limited ("FIL") and FMR Corp.
("FMR") have each filed Schedule 13Ds and amendments
thereto with the Securities and Exchange Commission
indicating that, although they do not consider
themselves to be acting as a "group," they hold,
directly or indirectly, a total of 2,434,067 shares of
Common Stock. The Schedule 13Ds state that FIL
beneficially owns, as investment adviser or the parent
of the investment adviser to certain international funds
and international pension accounts, 2,426,667 shares of
Common Stock and that such funds and accounts and FIL,
as investment adviser to the funds and accounts, have
sole voting and investment power as to all such shares.
A partnership controlled by Mr. Edward C. Johnson 3d and
members of his family own shares of FIL with the right to
cast approximately 47.22 percent of the total votes which
may be cast by shareholders of FIL. According to the
Schedule 13Ds, FMR beneficially owns, through Fidelity
Management Trust Company, 7,400 shares of the Company's
Common Stock. Mr. Johnson, who is Chairman of FIL and FMR,
and certain family members, are the predominant owners of
FMR's Class B shares of common stock representing approximately
49 percent of the voting power of FMR. Mr. Johnson and
Abigail Johnson together own 36.5 percent of the outstanding
voting stock of FMR. The Johnson family group and all other
Class B shareholders have entered into a shareholders'
voting agreement under which all Class B shares will be
voted in accordance with the majority vote of Class B
shares. The Schedule 13Ds indicate that FIL was a
subsidiary of Fidelity Management & Research Company
("Fidelity") prior to June 30, 1980, at which time the
shares of FIL held by Fidelity were distributed as a
dividend to the shareholders of FMR, and that FIL
currently operates as an entity independent of FMR and
Fidelity. The principal officers of FMR, Fidelity and
Mr. Johnson are located at 82 Devonshire Street, Boston,
Massachusetts 02109.
(3) According to information provided to the Company by the
Capital Group Companies, Inc. ("CGCI"), at December 31,
1996 CGCI beneficially owned, through its wholly-owned
subsidiary Capital Research and Management Company
("CRMC"), 1,415,000 shares of the Company's Common
Stock. CRMC serves as investment adviser to SMALLCAP
World Fund, Inc., a registered investment company.
(4) Includes 300,000 shares underlying presently exercisable
options.
(5) Includes 875,000 shares underlying presently exercisable
options. Does not include 75,000 shares issuable upon
the satisfaction of certain conditions established by
the Board of Directors, none of which have been met.
(6) Includes 285,017 shares held by a corporation of which
Mr. Hammond is an affiliate. Also includes 125,000
shares underlying presently exercisable options and
440,000 shares underlying 1,650 shares of Series A
Preferred held by Mr. Hammond and members of his family.
Also includes dividends paid on Series A Preferred in
common stock.
(7) Includes 125,000 shares underlying presently exercisable
options. Also includes 19,200 shares of Common Stock
underlying 72 shares of Series A Preferred, with a
conversion price of $3.75 per share of Common Stock.
(8) Includes 125,000 shares underlying presently exercisable
options.
(9) Includes 150,000 shares underlying presently exercisable
options. Does not include 250,000 shares underlying
conditional options held by Mr. Shaheen, the conditions
to the vesting of which have not yet been met.
(10) Includes 150,000 shares underlying presently exercisable
options. Does not include 50,000 shares underlying
conditional options held by Mr. Speer, the conditions to
the vesting of which have not yet been met.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following sets forth certan biographical information, the present
occupation and business experience for the past five years of each director
and executive officer:
Name Age Position with the Company
-------------------- ---- ---------------------------
Dwight W. Makins 46 Chairman of the Board
Keith Brackpool 39 Chief Executive Officer and Director
J.F.R. Hammond 55 Director
Stephen D. Weinress 56 Director
Susan K. Chapman 43 Chief Financial Officer and Secretary
Timothy J. Shaheen 37 Chief Executive Officer of Subsidiary
Stanley E. Speer 37 Senior Vice President,
Chief Financial Officer and Secretary
of Subsidiary
Dwight W. Makins was elected as Chairman of the Board in
December 1991. Mr. Makins currently serves as Chairman of
Greenway Holdings plc, a British waste oil recycling company
and as a director of several other British companies. Prior
to a change in ownership, which occurred in January 1997, Mr.
Makins was a director of King and Shaxson (Holdings) plc, a
British bank and discount house. Prior to July 1988, he was
managing director of John Govett & Co. Ltd. Mr. Makins is a
member of the Audit Committee and Compensation Committee of
the Board of Directors.
Keith Brackpool is a founder of the Company, and has
served as a member of the Company's Board of Directors since
September 1986, and served as Chairman of the Board from 1989
through December 1991, when he was reappointed as Chief
Executive Officer of the Company. From October 1989 until
May 1991, Mr. Brackpool was employed as the President of
Albert Fisher, Inc., a wholly-owned subsidiary of The Albert
Fisher Group PLC, a U.K. corporation and was a director of
The Albert Fisher Group PLC until May 31, 1991. Since 1988,
Mr. Brackpool has served as an officer and principal of the
general partner of 1334 Partners, Ltd., a California limited
partnership which holds commercial real estate in Southern
California.
J.F.R. Hammond was named to the Company's Board of
Directors in December 1991. Since March 1987 Mr. Hammond has
been self-employed, and his business activities primarily
involve private investments in various companies. Mr.
Hammond also serves as Chairman of a Canadian oil and gas
company traded on the Alberta exchange. Prior to March 1987,
Mr. Hammond was managing director of Greenwell-Montagu
Securities, a British brokerage firm. Mr. Hammond is a
member of the Audit Committee and Compensation Committee of
the Board of Directors.
Stephen D. Weinress was appointed a director of the
Company in September 1993. Since 1984 he has been the
Managing Director of L.H. Friend, Weinress, Frankson &
Presson, Inc., an investment banking firm based in Irvine,
California. Mr. Weinress is a member of the Audit Committee
and Compensation Committee of the Board of Directors.
Susan K. Chapman became Chief Financial Officer and
Secretary of the Company in November 1993. From 1985 until
she joined the Company, Ms. Chapman served as Vice President
of Operations and Controller of Agora Development, Inc., a
private real estate development company, where she supervised
all financial and operational aspects of the company. Prior
thereto, she served for five years as Senior Accountant with
the accounting firm of Price Waterhouse LLP, following which
she served as a senior financial executive of a privately
held manufacturing company. Ms. Chapman is a Certified
Public Accountant.
Timothy J. Shaheen was appointed Chief Executive Officer
and Director of the Company's Sun World subsidiary in
September 1996. Mr. Shaheen has seven years of experience in
the produce industry, most recently serving as a senior
executive with Albert Fisher North America. While with
Albert Fisher, Mr. Shaheen also served as Director of its
Canadian Produce Operations and as a Director of Fresh
Western Marketing, one of the largest growers/shippers of
fresh vegetables in the Salinas Valley of California. Mr
Shaheen has also served as a past director of the Los Angeles
Association of Produce Wholesalers and Dealers. Prior to his
employment with Albert Fisher, Mr. Shaheen was a senior
manager with the accounting firm of Ernst & Young LLP. Mr
Shaheen is a Certified Public Accountant.
Stanley E. Speer joined the Company in September 1996,
following completion of the acquisition by the Company of Sun
World, as Senior Vice President, Chief Financial Officer and
Secretary of Sun World. Mr. Speer has fifteen years of
experience in public accounting with the accounting firm of
Coopers & Lybrand LLP. From 1992 until September 1996, Mr.
Speer served as a partner in their financial advisory
services group specializing in business reorganizations and
mergers and acquisitions consulting. Mr. Speer is a
Certified Public Accountant and a Certified Insolvency and
Reorganization Accountant.
Directors of the Company hold office until the next
annual meeting of stockholders or until their successors are
elected and qualified. There are no family relationships
between any directors or current officers of the Company.
Officers serve at the discretion of the Board of Directors.
EXECUTIVE COMPENSATION
----------------------
The tables and discussion below set forth information
about the compensation awarded to, earned by, or paid to the
Company's executive officers during the nine months ended
December 31, 1996 and the fiscal years ended March 31, 1995
and 1996.
SUMMARY COMPENSATION TABLE
-------------------------
Long-Term
Compensation Awards
----------------------
Name and Annual Compensation(2) Restricted
Principal Fiscal -------------------- ----------- Stock
Position Year (1) Salary Bonus Stock Awards Options
- ---------------- --------- --------- --------- ------------ ---------
Keith Brackpool 12/31/96 $ 306,250 $ 625,000 $ 656,250(3) 250,000(4)
Chief Executive 03/31/96 350,000 175,000 -0- -0-
Officer 03/31/95 280,000 -0- -0- 750,000
Susan K. Chapman 12/31/96 95,000 25,000 -0- -0-
Chief Financial 03/31/96 130,000 -0- -0- -0-
and Secretary 03/31/95 110,000 -0- -0- 25,000(5)
Timothy J.
Shaheen(6) 12/31/96 181,891 125,000 -0- 400,000(7)
Chief Executive 03/31/96 44 551 -0- -0- -0-
Officer-Sun World
Stanley E.
Speer(8) 12/31/96 79,607 56,250 -0- 200,000(9)
Chief Financial
Officer and
Secretary - Sun World
- --------------------------
(1) In December 1996 the Company changed its fiscal year
end from March 31 to December 31. Consequently,
information is presented in this table for the nine
months ended December 31, 1996 and the fiscal years
ended March 31, 1996 and 1995. The executive
officers for whom compensation has been disclosed
for the nine months ended December 31, 1996
constituted all of the Company's executive officers as
of December 31, 1996. The total annual salary and
bonus of each such officer, on an annualized basis,
exceeds $100,000.
(2) No column for "Other Annual Compensation" has been
included to show compensation not properly categorized
as salary or bonus, which consisted entirely during
each fiscal year of perquisites and other personal
benefits, the aggregate amount of which did not exceed
the lesser of either $50,000 or ten percent of the
total of annual salary and bonus reported for each of
the above named executive officers for each fiscal
year. See "Employment Arrangements."
(3) On March 24, 1997, with a retroactive grant date of
December 31, 1996, the Company awarded Mr. Brackpool a
total of 125,000 shares of restricted stock, at no cost,
in consideration of extraordinary services performed
during 1996 in connection with the Company's acquisition
of Sun World, subject to the satisfaction of certain
conditions, namely, that (i) 50,000 of the shares would
vest and be issued upon completion of a refinancing of
Sun World's secured debt (which refinancing was
completed on April 16, 1997), and (ii) 25,000 of the
shares would vest and be issued each year on September 12,
1997, 1998 and 1999, if Mr. Brackpool is then employed by
the Company as its Chief Executive Officer. If Mr.
Brackpool's employment is terminated without cause prior
to the vesting or issuance of any of these shares, all of
such shares will immediately vest and be issued. None of
the 125,000 shares were issued at December 31, 1996.
Dividends will be paid on such shares (when issued and
outstanding) only to the same extent, if any, that
dividends are paid on all other outstanding shares of
Common Stock.
(4) The 250,000 options granted to Mr. Brackpool during the
fiscal year ended December 31, 1996 were conditional
options, of which 125,000 of such options have since
vested.
(5) The 25,000 options granted to Ms. Chapman during the
fiscal year ended March 31, 1995 were conditional
options, all of which have since vested.
(6) Mr. Shaheen joined the Company in January 1996 and on
September 14, 1996 was appointed Chief Executive
officer of Sun World. Salary reported for fiscal year
ended March 31,1996 represents compensation for the
period January 1996 through March 31, 1996.
(7) The 400,000 options granted to Mr. Shaheen during the
fiscal year ended December 31, 1996 were conditional
options, of which 150,000 such options have since
vested.
(8) Mr. Speer joined the Company in August 1996 and on
September 14, 1996 was appointed Chief Financial
Officer and Secretary of Sun World.
(9) The 200,000 options granted to Mr. Speer during the
fiscal year ended December 31, 1996 were conditional
options, of which 150,000 such options have since
vested.
OPTION GRANTS IN LAST FISCAL YEAR
Percent
of
Total
Options
Granted Exer- Potential Realizable
to cise Value at Assumed
Employees Price Annual Rates of Stock
in Per Expira- Price Appreciation
Options Fiscal Share tion for Option Term(5)
-------------------
Name Granted(1) Year(2) ($/Sh)(3) Date(4) 5% 10%
- ----------------- ---------- ------- ------- ------- --------- -----------
Keith Brackpool 250,000(6) 13.89% $4.50 9-13-01 $ 310,817 $ 703,295
Timothy J. Shaheen 400,000(7) 22.22% $4.50 9-13-01 $ 497,307 $ 1,125,272
Stanley E. Speer 200,000(8) 11.11% $4.50 9-13-01 $ 248,653 $ 562,636
(1) All options granted to the named officer were incentive
options.
(2) Also includes options granted to consultants during the
fiscal year.
(3) All options were granted at market value (average of
closing bid and asked prices for the Company's Common
Stock as reported by Nasdaq) at date of grant.
(4) All options have a fixed term of five years.
(5) Potential gains are reported net of the option exercise
price, but before taxes associated with exercise. These
amounts represent certain assumed rates of appreciation
only. Actual gains on stock option exercises are
dependent on the future performance of the Common Stock
and overall stock market conditions. The amounts
reflected in this table may not necessarily be achieved.
(6) Of this total, 125,000 options have vested and 125,000
options are to vest at such time as the stock of the
Company is traded at $9.00 per share.
(7) Of this total, 150,000 options have vested, 100,000
options vest within one year following the date of the
grant, 50,000 options are conditioned upon certain
performance criteria associated with the Company, and
100,000 options are conditioned upon certain criteria to
be established by the Board of Directors.
(8) Of this total, 150,000 options have vested, 25,000 options
are conditioned upon certain performance criteria
associated with the Company, and 25,000 options are
conditioned upon certain criteria to be established by the
Board of Directors.
FISCAL YEAR-END OPTION VALUES
Value of
Number of Unexercised
Unexercised In-the-Money
Options at Options at
FY-End (#) FY-End ($)
Exercisable/ Exercisable/
Name Unexercisable Unexercisable(1)
- ------------------ ------------------ ----------------
Keith Brackpool 750,000/250,000(2) $281,250/$93,750
Susan K. Chapman 125,000/0(3) $196,875/0
Timothy J. Shaheen 0/400,000(4) $0/150,000
Stanley E. Speer 0/200,000(5) $0/75,000
(1) Based upon the Nasdaq National Market closing sales price
per share at fiscal year end. No options were exercised
by the named executive officers during the last fiscal
year.
(2) Includes 750,000 shares underlying presently exercisable
options. Does not include 250,000 shares underlying
conditional options, the conditions to the vesting of
which had not been met as of December 31, 1996.
(3) Includes 125,000 shares underlying presently exercisable
options.
(4) Does not include 400,000 shares underlying conditional
options, the conditions to the vesting of which had not
been met as of December 31, 1996.
(5) Does not include 200,000 shares underlying conditional
options, the conditions to the vesting of which had not
been met as of December 31, 1996.
EMPLOYMENT ARRANGEMENTS
- -----------------------
Mr. Brackpool is compensated pursuant to a Compensation Agreement effective
April 2, 1993. Under the terms of this Agreement, as amended, Mr. Brackpool
receives compensation of $41,667 per month of which $12,500 is paid by Sun
World. Mr. Brackpool also receives the use of an autombile owned by the
Company.
Ms. Chapman is compensated pursuant to a letter agreement effective November
5, 1993 which provides for base compensation of $130,000 per annum. Ms.
Chapman also receives the use of an automobile owned by the Company.
Timothy J. Shaheen has been engaged by the Company to act as Chief Executive
Officer of Sun World. In this capacity, Mr. Shaheen receives compensation
from Sun World at an annual rate of $250,000 and the Board of Directors has
approved the grant to Mr. Shaheen of an aggregate of 400,000 incentive stock
options for the purchase of Common Stock of the Company at an exercise price
of $4.50 per share. The vesting of 250,000 of these options is subject to
the satisfaction of certain performance criteria which are either tied to
the performance of Sun World or are subject to the discretion of the Company's
Board of Directors. Mr. Shaheen also receives the use of an automobile
leased by the Company.
Stanley E. Speer has been engaged by the Company to act as Senior Vice
President, Chief Financial Officer and Secretary of Sun World. In this
capacity, Mr. Speer receives compensation from Sun World at an annual rate
of $225,000 and the Board of Directors has approved the grant to Mr. Speer
of an aggregate of 200,000 incentive stock options for the purchase of
Common Stock by the Company at an exercise price of $4.50 per share. The
vesting of 50,000 of these options is subject to the satisfaction of certain
performance criteria which are either tied to the performance of Sun World
or are subject to the discretion of the Company's Board of Directors. Mr.
Speer also receives the use of an automobile leased by the Company.
COMPENSATION OF DIRECTORS
- -------------------------
Mr. Brackpool does not receive any additional compensation for services as
a director of the Company.
Mr. Makins receives cash compensation for his services as Chairman pursuant
to a Compensation Agreement effective April 2, 1993, which provides for base
compensation of $75,000 per year, payable quarterly, in advance, plus payment
for certain additional services performed on behalf of the Company, at a
rate of $1,000. During the Company's 1996 fiscal year, Mr. Makins received
total cash compensation of $77,750 pursuant to this Compensation Agreement.
Mr. Makins receives cash compensation for his services as Director of the
Company's Sun World subsidiary in the amount of $25,000 per year, payable
quarterly in advance. During the Company's 1996 fiscal year, Mr. Makins
received total cash compensation of $12,500 from Sun World pursuant to
this arrangement.
Mr. Hammond receives cash compensation for his services as a Director
pursuant to a Compensation Agreement effective April 2, 1993, which provides
for compensation of $25,000 per year, payable quarterly in advance. During
the Company's 1996 fiscal year, Mr. Hammond received total cash compensation
of $18,750 pursuant to this arrangement.
Mr. Weinress receives cash compensation for his services as a Director in
the amount of $25,000 per year, payable quarterly in advance. During the
Company's 1996 fiscal year, Mr. Weinress received total cash compensation
of $18,750 pursuant to this arrangement.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -----------------------------------------------
Since April 1, 1994, the Company has issued in private placements a total of
190,000 shares of stock ranging in price from $4.00 per share to $5.75 per
share to Fidelity Investment Services, whose affiliates have filed a Schedule
13D with the Securities and Exchange Commission indicating that they hold in
excess of five percent of the Company's outstanding Common Stock in their
capacity as discretionary manager for a number of investment funds. See
"Principal Stockholders."
Since April 1, 1994, the Company has issued in private placements a total of
90,000 shares of stock at a price of $5.75 per share to Morgan Stanley Asset
Management, Inc. ("MSAM"), an affiliate of Morgan Stanley Group, Inc., who
filed a Schedule 13G with the Securities and Exchange Commission indicating
that it maybe deemed to be the indirect beneficial owner of in excess of five
percent of the Company's outstanding Common Stock in its capacity as an
Investment Advisor. See "Principal Stockholders." In addition, on September
13, 1996, the Company issued 3,000 shares of Series A Preferred for $1,000
per share to MSAM in an institutional private placement which provided
financing for the Company's acquisition of Sun World. The Series A Preferred
is convertible into shares of Common Stock at a conversion price of $3.75 per
share. See "Description of Securities."
In March 1996, the Company issued in a private placement a total of 250,000
shares of Common Stock at $5.75 per share to The Capital Group Companies,
Inc., which filed a Schedule 13G with the Securities and Exchange Commission
indicating that it holds in excess of five percent of the Company's
outstanding Common Stock in its capacity as discretionary manager by virtue
of its affiliates acting as investment manager to a number of institutional
investors. See "Principal Stockholders."
In connection with a private placement in October 1995, the Company issued
82,317 shares of Common Stock at a price of $4.10 per share to a corporation
of which Mr. J.F.R. Hammond, a director of the Company, is an affiliate.
In addition, on September 13, 1996, the Company issued 1,650 shares of
Series A Preferred at a price of $1,000 per share to Mr. Hammond and members
of his family. Each share of Series A Preferred is convertible into Common
Stock at a conversion price of $3.75 per share. See "Principal Stockholders."
In February 1995, L.H. Friend, Weinress & Frankson, Inc. ("L.H. Friend"), an
investment banking firm which is an affiliate of Mr. Stephen D. Weinress,
entered into an agreement with the Company pursuant to which L.H. Friend
provided investment banking services with respect to the development by the
Company of its water resources at its Piute property. As compensation for
these services, the Company agreed to pay to L.H. Friend a retainer fee of
$2,000 per month through July 31, 1995. The Company has also paid the
Weinress Group, a consulting firm which is an affiliate of Mr. Weinress,
consulting fees totaling $55,950 since April 1, 1995. The Company believes
that the terms of these transactions were at least as favorable to the
Company as those which could have been negotiated in arm's-length transactions
with unaffiliated third parties. In addition, for services rendered in
connection with the placement of the Series A Preferred, in September 1996,
the Company paid a fee to L.H. Friend in the amount of $145,500 and issued
72 shares of Series A Preferred with a value of $1,000 per share, which is
convertible into shares of Common Stock at a conversion price of $3.75
per share. See "Principal Stockholders."
Except as otherwise disclosed, each of the transactions described above
was entered into by the Company on terms which were the same as, or equivalent
to, the terms which the Company had negotiated at arm's-length with
independent parties in the same transactions.
SELLING SECURITY HOLDERS
The following table sets forth, as of April 22, 1997, certain ownership
information with respect to the Selling Security Holders. The information
set forth below is based upon reports of beneficial ownership filed with the
Securities and Exchange Commission and records of the Company and its transfer
agent, Continental Stock Transfer & Trust Company. If the Selling Security
Holders were to sell all of the Shares covered by this Prospectus, (1) each
Selling Security Holder would have no further beneficial interest in the
Company's Common Stock except as otherwise noted. Unless noted, the Selling
Security Holders have not had any position, office or other material
relationship with the Company or any of its affiliates within the past
three years.
SHARES
BENEFICIALLY
OWNED SHARES
NAME (2) OFFERED (2)
- ---------------------------------- ------------ ------------
Cooperative Centrale Raiffeisen-
Boerenleenbank B.A. ("Rabobank")(3) 240,000 (6) 240,000 (6)
Nina J. Cohen 12,500 (7) 12,500 (7)
Lar Ze Company 50,500 (8) 50,500 (8)
Zenith Insurance Company 80,000 (9) 80,000 (9)
Capital Group Companies, Inc. 1,415,000 (10) 250,000 (10)
MeesPierson Securities, Ltd. 2,169,971 (11) 2,169,971 (11)
Pengo Securities Corp.
(Smith Asset Management) 1,399,996 (12) 1,399,996 (12)
BT Holdings (NY) Inc.
(Bankers Trust) 1,119,998 (13) 1,119,998 (13)
Morgan Stanley Asset
Management, Inc. 2,536,750 (14) 839,996 (14)
Heritable & General Investment
Bank Ltd. 419,993 (15) 419,993 (15)
Amberwood Investments Ltd. 419,998 (16) 419,998 (16)
Singer & Friedlander (IOM) Ltd. 419,998 (17) 419,998 (17)
William Harris Investments Inc.
(Harris Trust) 279,990 (18) 279,990 (18)
Wood Gundy, Inc. 137,857 (19) 137,857 (19)
Smith Barney Inc. (5) 491,959 (20) 491,959 (20)
The Weinress Group (4) 20,158 (21) 20,158 (21)
Henderson Crosthwaite Institutional
Brokers Ltd. (5) 14,558 (22) 14,558 (22)
Henry Ansbacher & Co. Limited(3) 770,667 (23) 290,000 (23)
ING Baring (U.S.)
Capital Corporation(3) 75,000 (24) 75,000 (24)
Hunter & Company(5) 50,000 (25) 50,000 (25)
____________________________________________________
(1) The Selling Security Holders are not required to sell all
or any part of the Shares covered by this Prospectus; therefore,
the number and percentage of outstanding Shares to be held by
them after completion of the offering may exceed that indicated
herein.
(2) Includes Conversion Shares, Dividend Shares, Option Shares and Warrant
Shares offered under this Prospectus which have not yet been issued.
(3) Lender or former lender to the Company. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
(4) A consulting firm which is an affiliate of a Director of
the Company. See "Management-Directors and Executive Officers."
(5) Consultant to the Company.
(6) Includes 240,000 Warrant Shares underlying Warrants
exercisable at $0.05 per share, which expire December 31, 2000.
(7) Includes 12,500 Placement Shares.
(8) Includes 50,500 Placement Shares.
(9) Includes 80,000 Placement Shares.
(10) Includes 250,000 Placement Shares. Assuming the sale of
all Shares covered by this Prospectus, Capital Group Companies, Inc.
would continue to beneficially own 1,165,000 shares of Common Stock
(11) Includes 2,066,659 Conversion Shares and 103,312 Dividend Shares.
(12) Includes 1,333,333 Conversion Shares and 66,663 Dividend Shares.
(13) Includes 1,066,666 Conversion Shares and 53,332 Dividend Shares.
(14) Includes 800,000 Conversion Shares and 39,996 Dividend Shares.
Assuming the sale of all Shares covered by this Prospectus,
Morgan Stanley Asset Management, Inc. would continue to beneficially
own 1,696,754 shares of Common Stock.
(15) Includes 399,998 Conversion Shares and 19,995 Dividend Shares.
(16) Includes 400,000 Conversion Shares and 19,998 Dividend Shares.
(17) Includes 400,000 Conversion Shares and 19,998 Dividend Shares.
(18) Includes 266,665 Conversion Shares and 13,325 Dividend Shares.
(19) Includes 133,332 Conversion Shares and 4,525 Dividend Shares.
(20) Includes 468,533 Conversion Shares and 23,426 Dividend Shares.
(21) Includes 19,200 Conversion Shares and 958 Dividend Shares.
(22) Includes 13,866 Conversion Shares and 692 Dividend Shares.
(23) Includes 290,000 Placement Shares. Assuming the sale of all
Shares covered by this Prospectus, Henry Ansbacher & Co. Limited
would continue to beneficially own 480,667 shares of Common Stock.
(24) Includes 75,000 Warrant Shares underlying Warrants which will be
exercisable for five years beginning on April 30, 1997 at an
exercise price equal to the average daily closing price of the
Company's Common Stock over a ten trading day period ending on
April 29, 1997.
(25) Includes 50,000 Option Shares underlying Options exercisable at
$5.50 per share, which expire January 9, 2000.
PLAN OF DISTRIBUTION
The Company has been advised by the Selling Security
Holders that there are no underwriting arrangements with
respect to the sale of the Shares and Warrants, that the
Shares and Warrants will be sold from time to time (i) as
to the Shares only, in the over-the-counter market
(through Nasdaq) at then prevailing prices, or (ii) as to
the Shares and the Warrants, in private transactions at
negotiated prices, and that usual and customary brokerage
fees may be paid by the Selling Security Holders in
connection therewith. The Company will receive none of
the proceeds from sales by the Selling Security Holders of
the Shares and Warrants.
In connection with such sales, the Selling
Security Holders and any participating broker may be
deemed to be "underwriters" of the Shares and Warrants, as
such term is defined in the Act, although the offering of
the Shares and Warrants will not be underwritten by a
broker-dealer or investment banking firm. Sales of the
Shares may be made in the over-the-counter market to
broker-dealers making a market in the Common Stock or to
other broker-dealers, and such broker-dealers, upon their
resale of the Shares, may also be deemed to be "underwriters"
under the Act.
The Company has agreed to indemnify certain of the
Selling Security Holders against liabilities they may
incur as a result of any untrue statement of a material
fact in the Registration Statement of which this
Prospectus forms a part, or any omission herein or therein
to state a material fact necessary in order to make the
statements made, in the light of the circumstances under
which they were made, not misleading. Such
indemnification includes liabilities that such Selling
Security Holders may incur under the Act. No such
indemnification must be given by the Company if the untrue
statement or omission was made in reliance upon and in
conformity with information furnished in writing to the
Company by the Selling Stockholder for use in the
Registration Statement.
The Company will bear all costs and expenses of
the registration of the Shares and Warrants under the Act
and certain state securities laws, other than fees of
counsel (if any) retained by the Selling Security Holders
and any discounts or commissions payable with respect to
sales of the Shares and Warrants.
The Company has advised the Selling Security
Holders of (i) the requirement for delivery of this
Prospectus in connection with any sale of the Shares or
Warrants, and (ii) the relevant cooling off period
specified by Regulation M and restrictions upon the Selling
Security Holders' bidding for or purchasing securities of
the Company during the distribution of Shares and
Warrants.
DESCRIPTION OF SECURITIES
GENERAL
- -------
The Company is authorized to issue 45,000,000
shares of Common Stock, par value $.01 per share, and
100,000 shares of Preferred Stock, par value $.01 per
share ("Preferred Stock").
COMMON STOCK
- --------------
Holders of Common Stock are entitled to one vote,
either in person or by proxy, for each share held of
record by them on all matters submitted to a vote of
stockholders. Except as otherwise provided by law, action
can be taken by a majority of shares entitled to vote at a
meeting. Holders of Common Stock have no cumulative
voting rights. Holders of Common Stock are entitled to
dividends when, as and if declared by the Board of
Directors out of funds legally available therefor, subject
to the prior rights of the holders of any Preferred Stock.
In the event of liquidation or dissolution and winding up
of the Company, holders of Common Stock are entitled to
share ratably in the assets of the Company remaining after
payment of liabilities and after provision has been made
for each class of stock, including any Preferred Stock
outstanding at that time, that has preference over the
Common Stock. Holders of Common Stock, as such, have no
conversion, preemptive or other subscription rights, and
there are no redemption or sinking fund provisions
applicable to the Common Stock. All of the outstanding
shares of Common Stock are, and, when issued, the Option
Shares and Warrant Shares of Common Stock offered under this
Prospectus will be, fully paid and nonassessable.
PREFERRED STOCK
- ----------------
Shares of Preferred Stock may be issued without
stockholder approval. The Board of Directors is
authorized to issue such shares in one or more series and
to fix the rights, preferences, powers, qualifications,
limitations and restrictions thereof, including dividend
rights and rates, conversion rights, voting rights, terms
of redemption, redemption prices, liquidation preferences
and the number of shares constituting any series or the
designation of such series, without any vote or action by
the stockholders.
To date the Board of Directors has designated
three series of Preferred Stock for issuance, including
(i) up to 60,000 shares of Series A Preferred, of which
27,631 shares have been issued and 27,431 shares will
remain outstanding until May 7, 1997, when they will all be
mandatorily converted by the Company into 7,314,920 shares
of Common Stock; (ii) up to 1,000 shares of Series B
Preferred, of which 1,000 shares have been issued and 90
shares currently remain outstanding; and (iii) up to 365
shares of Series C Preferred, of which 300 shares have
been issued and no shares currently remain outstanding.
The Series A Preferred is convertible into shares
of Common Stock, at the option of the holder, at a price
of $3.75 per share. Holders thereof are entitled to
cumulative dividends payable at a rate of 6% per annum
The Series A Preferred is also mandatorily convertible in
full at the option of the Company at any time prior to
May 12, 1997 provided that, as a condition to such conversion,
the Company shall pay to holders one full year's worth of
dividends (less the amount of any dividends theretofore
paid). The Company has delivered notice of exercise of this
right, effective May 7, 1997, to all holders of Series A
Preferred at which time all shares of Series A Preferred
will be converted into 7,314,920 shares of Common Stock.
Both the Series B Preferred and the Series C Preferred are
convertible into shares of Common Stock at a price equal to
the lower of (a) $5.8125 per share or (b) 85% of the average
closing bid price over the ten trading-day period ending on
the day prior to the submission of any conversion notice.
Holders thereof are also entitled to cumulative dividends at
the rate of 6% per annum until conversion. The Company
reserves the right to redeem any convertible shares of
Preferred Stock for their full cash equivalent by giving
the investors five days' notice.
Subject to the rights of creditors, holders of
Series A Preferred are entitled, in the event of any
voluntary or involuntary liquidation of the Company, to an
amount in cash equal to $1,000 for each share outstanding
and for each share issuable with respect to all accrued
and unpaid dividends. Holders of Series B Preferred and
Series C Preferred have similar liquidation rights as to
an amount in cash equal to $10,000 for each share
outstanding and for each share issuable with respect to
all accrued and unpaid dividends. In the event of such a
liquidation, the Series A Preferred, Series B Preferred
and Series C Preferred would rank equally with each other
and on a parity with any other class or series of
Preferred Stock of the Company, and would rank senior and
prior to the Company's Common Stock.
Except as provided by law, holders of Series A
Preferred, Series B Preferred and Series C Preferred shall
not be entitled to vote upon any matter submitted to a
vote of the Company's stockholders.
As of the date of this Prospectus, the Company has
no current plans for the issuance of any additional shares
of Preferred Stock. The Company's ability to issue
additional Preferred Stock is restricted by covenants in
the Sun World Indenture. However, any Preferred Stock that
may be issued in the future could rank prior to the Common
Stock offered hereby with respect to dividend rights and
rights on liquidation. The Board of Directors may,
without stockholder approval, issue Preferred Stock with
voting and conversion rights that could adversely affect
the voting power of holders of the Common Stock offered
hereby or create impediments to persons seeking to gain
control of the Company, although there is no present
intention to do so. The issuance of such shares could
prevent holders of the Company's Common Stock from
receiving a premium for their shares from a potential
third-party acquiror. See "Risk Factors - Authorization
of 'Blank Check' Preferred Stock."
WARRANTS
- --------
The Warrants offered for sale hereunder by one of
the Company's institutional lenders are exercisable for
the purchase of up to 240,000 shares of Common Stock at an
exercise price of $.05 per share. These Warrants expire on
December 31, 2000. The Warrants offered by the other
institutional lender will become exercisable for five years
beginning on April 30, 1997 for the purchase of up to 75,000
shares of Common Stock at an exercise price equal to the average
daily closing price of the Company's Common Stock over a ten
trading day period ending on April 29, 1997. The exercise
price and the number and kind of securities which can be
purchased upon exercise of all of the Warrants are subject to
standard anti-dilution and other adjustments to be made from
time to time in the event of any (i) dividend or distribution
in shares of Common Stock, (ii) subdivision, reclassification
or combination of Common Stock, (iii) issuance to all holders
of Common Stock of rights or warrants entitling them to purchase
shares of Common Stock at a price less than the current market
price of the Common Stock, (iv) issuance to all holders of Common
Stock of evidences of the Company's indebtedness or assets (excluding
cash dividends or distributions) or rights or warrants (excluding
those referred to in (iii) above), or (v) issuance of shares of
Common Stock, or securities convertible into or exchangeable for
shares of Common Stock, at a price less than the current market
price of the Common Stock.
TRANSFER AGENT
- ---------------
The transfer agent for the Company's Common Stock
is Continental Stock Transfer & Trust Company, New York,
New York.
LEGAL MATTERS
Certain legal matters in connection with the
issuance of the securities offered hereby will be passed
upon for the Company by Miller & Holguin, attorneys at
law, Los Angeles, California.
EXPERTS
The consolidated financial statements of the
Company as of December 31 and March 31, 1996 and for
the nine month period ended December 31, 1996 and for
each of the two years ended March 31, 1996, and of Sun
World as of September 13, 1996 and for the period January 1,
1996 through September 13, 1996, which are included in this
Prospectus have been so included in reliance on the report
of Price Waterhouse LLP, independent accountants, given on
the authority of said firm as experts in auditing and
accounting.
The consolidated financial statements of Sun World as of
December 31, 1995 and 1994 and for each of the two years
ended December 31, 1995 and 1994 which are included in
this Prospectus have been so included in reliance on the
report (which report expresses an unqualified opinion
and includes an explanatory paragraph referring to Sun
World's bankruptcy and reorganization) of Deloitte & Touche LLP,
independent auditors, given upon their authority as experts
in accounting and auditing.
INDEX TO FINANCIAL STATEMENTS
Index to Audited Financial Statements of Cadiz Land Company, Inc.
for the nine months ended December 31, 1996:
Report of Independent Accountants...................................F-2
Consolidated Balance Sheet..........................................F-3
Consolidated Statement of Cash Flows................................F-5
Consolidated Statement of Operations................................F-6
Consolidated Statement of Redeemable Preferred Stock,
Preferred Stock, Common Stock and Other Stockholders' Equity.......F-7
Notes to the Consolidated Financial Statements......................F-9
Index to Audited Financial Statements of Sun World International, Inc.
for the years ended December 31, 1995 and 1994:
Independent Auditors' Report.........................................F30
Consolidated Balance Sheets..........................................F31
Consolidated Statements of Operations and Accumulated Deficit........F32
Consolidated Statements of Cash Flows................................F33
Notes to Consolidated Financial Statements...........................F34
Index to Audited Financial Statements of Sun World International, Inc.
for the period January 1, 1996 through September 13, 1996:
Report of Independent Accountants....................................F49
Consolidated Balance Sheet...........................................F50
Consolidated Statement of Operations & Accumulated Deficit...........F51
Consolidated Statement of Cash Flows.................................F52
Notes to the Consolidated Financial Statements.......................F53
Index to Unaudited Pro Forma Combined Financial Statements of
Cadiz Land Company, Inc. and Sun World International, Inc.:
Pro Forma Combined Statement of Operations for the nine months
ended December 31, 1996.............................................F70
Notes to the Pro Forma Combined Statements of Operations.............F71
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of
Cadiz Land Company, Inc.
In our opinion, the consolidated balance sheet and the related consolidated
statements of operations, of redeemable preferred stock, preferred stock,
common stock and other stockholders' equity and of cash flows present
fairly, in all material respects, the financial position of Cadiz Land
Company, Inc. and its subsidiaries at December 31, 1996 and March 31, 1996,
and the results of their operations and their cash flows for the nine
months ended December 31, 1996 and for each of the two years in
the period ended March 31, 1996, in conformity with generally
accepted accounting principles. These financial statements are
the responsibility of the Company's management; our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits of these statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for the opinion expressed above.
/s/ Price Waterhouse LLP
- ------------------------------
PRICE WATERHOUSE LLP
Los Angeles, California
March 7, 1997, except for Note 7,
which is as of March 31, 1997
CADIZ LAND COMPANY INC.
Consolidated Balance Sheet
($ in thousands)
December 31 March 31
1996 1996
--------- ---------
Assets
Current assets:
Cash and cash equivalents $ 33,307 $ 5,153
Accounts receivable, net 7,533 443
Assets held for sale 6,534 -0-
Inventories 14,121 266
Prepaid expenses and other 1,225 190
---------- --------
Total current assets 62,720 6,052
Investment in partnerships 6,122 -0-
Property, plant and equipment, net 137,897 11,681
Land held for development 12,671 12,236
Water rights and transfer and
storage projects 4,705 2,496
Other assets 1,695 1,043
Excess purchase price over
net assets acquired, net 4,980 5,155
------------ ------------
$ 230,790 $ 38,663
=========== ==========
See accompanying notes to the consolidated financial statements.
CADIZ LAND COMPANY, INC.
Liabilities, Stock and Other Stockholders' Equity
($ in thousands)
December 31 March 31
1996 1996
------- ---------
Current liabilities:
Accounts payable $ 7,435 $ 1,772
Accrued liabilities 5,172 521
Long-term debt, current portion 4,753 17,617
Other current liabilities 591 -0-
-------- --------
Total current liabilities 17,951 19,910
Long-term debt 149,111 -0-
Deferred income taxes 4,347 -0-
Other liabilities 4,209 -0-
Commitments and contingencies
Series A redeemable preferred stock -
$.01 par value ($1,000 liquidation
value); 60,000 shares authorized;
27,431 shares issued and outstanding
at December 31, 1996 27,431 -0-
Preferred stock - $.01 par value
40,000 shares authorized; 340
shares issued and outstanding at
December 31, 1996 - -0-
Common stock - $.01 par value; 45,000,000
shares authorized; shares issued and
outstanding - 23,445,868 at December 31,
1996 and 19,247,611 at March 31, 1996 234 192
Additional paid-in capital 88,574 72,957
Accumulated deficit (61,067) (54,396)
---------- ---------
$ 230,790 $ 38,663
========= =========
See accompanying notes to the consolidated financial statements.
CADIZ LAND COMPANY, INC.
Consolidated Statement of Cash Flows
($ in thousands)
Nine Months Ended Year Ended
December 31, March 31,
1996 1996 1995
------ ------ ------
Cash flows from operating activities:
Net loss from continuing
operations $ (5,997) $ (8,487) $ (4,591)
Adjustments to reconcile net
loss from continuing operations
to cash used for continuing
operating activities:
Depreciation and amortization 1,654 1,909 1,450
Extraordinary gain on debt
settlement -0- -0- (115)
Interest capitalized to debt 481 474 734
Share of partnership operations (838) -0- -0-
Changes in operating assets and
liabilities, net of acquisition
of Sun World:
Decrease (increase) in accounts
receivable 11,367 (379) (198)
Decrease in inventories 1,000 -0- -0-
(Increase) decrease in prepaid
expenses and other (428) 13 (158)
(Decrease) increase in accounts
payable (7,208) 734 (12)
Increase in accrued liabilities 577 -0- -0-
(Decrease) in other liabilities (674) -0- -0-
------- ------- --------
Net cash used for continuing
operating activities (66) (5,736) (2,890)
Net cash provided by discontinued
operating activities -0- -0- 57
------- ------- -------
Net cash used for operating
activities (66) (5,736) (2,833)
------- -------- --------
Cash flows from investing activities:
Additions to property, plant
and equipment (405) (358) (1,506)
Proceeds from disposal of property,
plant and equipment 12,415 -0- -0-
Land purchase and development (490) (574) (315)
Water transfer and storage projects (343) (732) (1,547)
Additions to developing crops (187) -0- -0-
Partnership distributions 140 -0- -0-
Acquisition of Sun World, net
of cash acquired (4,474) (693) -0-
-------- -------- --------
Net cash provided by (used for)
investing activities 6,656 (2,357) (3,368)
--------- -------- --------
Cash flows from financing
activities:
Net proceeds from issuance
of stock 37,761 10,292 2,307
Principal payments on long-term
debt (16,428) (177) (530)
Proceeds from short-term debt 347 677 2,470
Principal payments on short-term
debt (17) -0- -0-
Dividends paid on conversion of
preferred stock (99) -0- -0-
---------- ---------- -----------
Net cash provided by financing
activities 21,564 10,792 4,247
Net increase (decrease) in cash and
cash equivalents 28,154 2,699 (1,954)
Cash and cash equivalents,
beginning of period 5,153 2,454 4,408
---------- ---------- ---------
Cash and cash equivalents,
end of period $ 33,307 $ 5,153 $ 2,454
========= ========= ========
See accompanying notes to the consolidated financial statements.
CADIZ LAND COMPANY, INC.
Consolidated Statement of Operations
(In thousands except per share data)
Nine Months Ended Year Ended
December 31, March 31,
1996 1996 1995
------ ------ ------
Revenues $ 23,780 $ 1,441 $ 543
-------- -------- -------
Costs and expenses:
Cost of sales 17,725 1,649 506
Resource development 1,133 1,680 1,039
Landfill prevention activities 394 1,919 -0-
General and administrative 4,924 1,826 1,525
Depreciation 864 833 737
Amortization 175 234 234
-------- -------- --------
Total costs and expenses 25,215 8,141 4,041
-------- -------- --------
Operating loss (1,435) (6,700) (3,498)
Interest expense, net 5,203 1,787 1,208
-------- -------- -------
Loss before income taxes and
extraordinary item (6,638) (8,487) (4,706)
Income tax benefit (641) -0- -0-
--------- -------- --------
Loss before extraordinary item (5,997) (8,487) (4,706)
Extraordinary item - gain on
debt settlement -0- -0- 115
--------- --------- --------
Net loss (5,997) (8,487) (4,591)
Less: Preferred stock dividends (674) -0- -0-
Imputed dividend on
preferred stock (2,451) -0- -0-
----------- --------- --------
Net loss applicable to
common stock $ (9,122) $ (8,487) $ (4,591)
======== ======== ========
Net loss per common share:
Loss before
extraordinary item $ (.44) $ (.48) $ (.29)
Extraordinary item -0- -0- .01
----------- ----------- ----------
Net loss per common share $ (.44) $ (.48) $ (.28)
========== ========= ========
Weighted average shares
outstanding 20,500 17,700 16,500
========== ========= ========
See accompanying notes to the consolidated financial statements.
CADIZ LAND COMPANY, INC.
Consolidated Statement of Redeemable Preferred Stock,
Preferred Stock, Common Stock and Other Stockholders' Equity
For the Nine Months Ended December 31, 1996 and the Two Years Ended
March 31, 1996
($ in thousands)
Redeemable Addi-
Preferred Preferred Common tional Accumu-
Stock Stock Stock Paid-in lated
Shares Amount Shares Amount Shares Amount Capital Deficit
------ ------ ------ ------ ---------- ------- ------- -------
Balance
as of
March 31,
1994 -0- $ -0- -0- $ -0- 15,430,864 $ 154 $ 59,890 $(41,318)
Issuance
of shares
for
professional
services 110,000 1 384
Issuance
of stock
warrants
for
services 121
Exercise
of stock
options
and
warrants 1,447,590 15 2,292
Net loss ( 4,591)
------ ----- ----- ------ ---------- ----- ------- -------
Balance
as of
March 31,
1995 -0- -0- -0- -0- 16,988,454 170 62,687 (45,909)
Issuance
of shares
in
connection
with
private
placements 2,114,157 21 9,911
Exercise
of stock
options 145,000 1 359
Net loss (8,487)
----- ------ ----- ------ ---------- ---- ------- ------
Balance
as of
March 31,
1996 -0- -0- -0- -0- 19,247,611 192 72,957 (54,396)
Exercise
of stock
options and
warrants 335,000 3 939
Common stock
issued for
acquisition
of Sun World 1,153,908 12 3,576
Gross proceeds
from private
placement of
redeemable
preferred
stock 26,131 26,131
Preferred
shares
issued for
acquisition
fees 1,500 1,500
Net proceeds
from
private
placements
of preferred
stock 1,300 10,688
Cash
dividends
paid on
conversion
of preferred
stock (99)
Dividends
paid in
common
stock
on
conversion
of
preferred
stock 28,777 127 (127)
Accrued
dividends
on
preferred
stock (448)
Conversion
of
redeemable
preferred
to common
stock (200) (200) 53,332 1 199
Conversion
of
preferred
stock
to common
stock (960) 2,672,240 26 (26)
Issuance
of stock
warrants
for
services 114
Net loss (5,997)
------ ------- ------ ------- -------- ----- -------- --------
Balance
as of
December
31,
1996 27,431 $27,431 340 $ - 23,445,868 $ 234 $88,574 $ (61,067)
======= ======= ====== ==== ========== ===== ======= =========
See accompanying notes to the consolidated financial statements.
CADIZ LAND COMPANY, INC.
NOTES TO THE CONSOIDATED FINANCIAL STATEMENTS
NOTE 1 - DESCRIPTION OF BUSINESS
- ---------------------------------
The long-term strategy of Cadiz Land Company, Inc. (the
"Company") is to acquire and develop water-related land and
agricultural assets. The Company has created an integrated
and complimentary portfolio of landholdings, water resources,
and agricultural operations located within central and
southern California which either possess sizable assured
supplies of water or can, in future years, utilize water
supplied from other Company properties. Management believes
that, with both the increasing scarcity of water supplies in
California and the increasing demand for water, the Company's
access to water will provide it with a competitive advantage
both as a major agricultural concern and as a supplier of
water which will lead to continued appreciation in the value
of the Company's portfolio.
On September 13, 1996, the Company acquired all of the
stock of a reorganized Sun World International, Inc. ("Sun
World") pursuant to a consensual plan of reorganization
(Debtors' Modified Fourth Amended Consolidated Plan of
Reorganization dated June 3, 1996 (Modified)) which was
confirmed by the U.S. Bankruptcy Court at a hearing on July
12, 1996. Sun World and certain subsidiaries of Sun World had
filed voluntary petitions for relief under Chapter 11 of the
Bankruptcy Code on October 3, 1994 after debt restructuring
negotiations with Sun World's existing lenders failed.
With its acquisition of Sun World, the Company has become
a vertically integrated agricultural company. Sun World owns
and farms approximately 17,300 acres in two major growing
areas of California, the Southern San Joaquin Valley and the
Coachella Valley. Fresh produce, including table grapes, tree
fruit, peppers and watermelon are marketed, packed and shipped
to food wholesalers and retailers located throughout the
United States and to over 30 foreign countries. As of
December 31, 1996, Sun World owned and operated five cold
storage and/or packing facilities located in California.
In addition, the acquisition of Sun World provided the
Company valuable water rights throughout the central and
southern valleys of California. The Company's landholdings,
which now total approximately 56,300 acres, are located
adjacent to the major aqueduct systems of central and southern
California, and in close proximity to the Colorado River. The
Company expects to utilize these resources to participate in
a broad variety of water transfer and storage projects,
including the storage and transfer of surplus water for public
agencies which require supplemental sources of water.
Although the development and management activities of the
Company are currently focused on agricultural operations
(primarily through its wholly-owned subsidiary, Sun World) and
water resource development, the Company will continue to seek
to develop and manage its land, water and agricultural
resources for their best use.
NOTE 2 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries,
Sun World (since September 14, 1996), Cadiz Valley Development
Corporation, Inc., and Southwest Fruit Growers Limited
Partnership, a limited partnership ("SWFG") in which the
Company is the general partner and has an approximate 66.3
percent partnership interest. SWFG owns a total of 680 acres
of table grape vineyards and 2,560 acres of undeveloped land
at Cadiz, California. Allocable losses incurred through the
year ended March 31, 1991 served to eliminate the minority
interest in SWFG for accounting purposes. All material
intercompany balances and activity have been eliminated from
the consolidated financial statements.
CHANGE IN YEAR END AND RECLASSIFICATIONS
As a result of the Company's acquisition of Sun World,
the Company changed its fiscal year end from March 31 to
December 31 in order to align the Company's year end with that
of Sun World. Prior to the acquisition of Sun World, the
Company had utilized an unclassified balance sheet
(eliminating the distinction between current assets and long-term
assets and current liabilities and long-term
liabilities). The financial statements set forth herein
utilize a classified balance sheet, thus requiring certain
reclassifications to be made to the prior period balances to
conform with the December 31, 1996 presentation.
The following unaudited information for the nine months
ended December 31, 1995, which does not include the operations
of Sun World, is presented for informational purposes only
(dollars in thousands):
Nine months
ended
December 31, 1995
---------------
Revenues $ 1,120
Net loss $ (5,346)
Net loss per common share $ (0.31)
USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
those estimates.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost.
The Company capitalizes direct and certain indirect costs
of planting and developing orchards and vineyards during the
development period, which varies by crop and ranges from three
to seven years. Depreciation commences in the year commercial
production is achieved.
Permanent land development costs, such as acquisition
costs, clearing, initial leveling costs and other costs
required to bring the land into a suitable condition for
general agricultural use, are capitalized and not depreciated
since, by definition, these costs have an indeterminate useful
life.
Depreciation is provided using the straight-line method
over the estimated useful lives of the assets, generally ten
to forty-five years for land improvements and buildings, three
to twenty-five years for machinery and equipment, and ten to
thirty years for permanent crops.
LAND HELD FOR DEVELOPMENT
Land held for development consists of approximately
37,000 acres of undeveloped land in Cadiz, Piute and other
desert regions of California. Land held for development is
stated at cost. Cost includes those that are directly related
to the acquisition of the acreage, such as the cost to
purchase, commissions, real estate taxes and legal and other
professional fees.
INVESTMENT IN PARTNERSHIPS
Sun World has investments in various partnerships which
are accounted for using the equity method. Sun World's two
principal partnerships are American Sunmelon and Sun Date,
both of which are 50% owned. American Sunmelon is engaged in
proprietary development, production, and marketing of seedless
watermelon seed. Sun Date is engaged in the processing of
dates. In September 1996, Sun Date and Sun World entered into a
marketing agreement whereby Sun World agreed to sell the dates
produced by Sun Date. During the period September 14, 1996
through December 31, 1996, Sun World made payments to Sun Date
totaling $869,000, primarily related to date crop proceeds.
ASSETS HELD FOR SALE
Certain Sun World assets were identified as either idle
facilities, fallow land, or farming operations which have
experienced consistently low returns on investment. As of
December 31, 1996, assets totaling $6,534,000 have been
identified and are included in the accompanying consolidated
balance sheet at the lower of cost or fair value less
estimated costs to sell. The Company reasonably believes
these assets can be sold within one year.
SUPPLEMENTAL CASH FLOW INFORMATION
The Company considers all short-term deposits with an
original maturity of three months or less to be cash
equivalents. The Company invests its excess cash in deposits
with major international banks and, therefore, bears minimal
risk. Such investments are stated at cost, which approximates
fair value, and are considered cash equivalents for purposes
of reporting cash flows. At December 31, 1996, cash and cash
equivalents totalled $33,307,000, of which $453,000
represented the balance remaining in the trust account for the
payment of unsecured creditors' claims as determined during
the reorganization of Sun World.
Cash paid for interest during the nine months ended
December 31, 1996 and the fiscal years ending March 31, 1996,
and 1995 was $3,892,000, $455,000 and $6,000, respectively.
WATER RIGHTS AND TRANSFER AND STORAGE PROJECTS
All water rights and transfer and storage projects are
stated at cost. All costs directly attributable to the
development of the water transfer projects are being
capitalized by the Company. These costs, which are expected
to be recovered through future revenues, consist of drilling
costs, hydrological costs, consulting fees for various
engineering, environmental and feasibility studies, and other
professional and legal fees.
INVENTORIES
Growing crops, pepper seed, and materials and supplies
are stated at the lower of cost, on a first-in, first-out
(FIFO) basis, or market. Growing crops inventory includes
direct costs and an allocation of indirect costs.
REVENUE RECOGNITION
The Company recognizes crop sale revenue after harvest
and delivery to customers. Packing revenues are recognized as
units are packed. Marketing commission revenues are
recognized at the time of product shipment.
RESEARCH AND DEVELOPMENT
Sun World incurs costs to research and develop new
varieties of proprietary products. Research and development
costs are expensed as incurred. Such costs were approximately
$120,000 during the period September 14, 1996 through December
31, 1996.
EXCESS OF PURCHASE PRICE OVER NET ASSETS ACQUIRED
As a result of a merger in May 1988 between two companies
which eventually became known as Cadiz Land Company, Inc.,
excess of purchase price over net assets acquired in the
amount of $7,006,000 was recorded. This amount is being
amortized at the rate of $234,000 annually on a straight-line
basis over thirty years. Accumulated amortization was
$2,026,000 and $1,851,000 at December 31, 1996 and March 31,
1996, respectively.
IMPAIRMENT
The Company annually evaluates its long-lived assets,
including intangibles, for potential impairment. When
circumstances indicate that the carrying amount of the asset
may not be recoverable, as demonstrated by estimated future
cash flows, an impairment loss would be recorded based on fair
value.
INCOME TAXES
Income taxes are provided for using an asset and
liability approach which requires the recognition of deferred
tax assets and liabilities for the expected future tax
consequences of temporary differences between the financial
statement and tax bases of assets and liabilities at the
applicable enacted tax rates. A valuation allowance is
provided when it is more likely than not that some portion or
all of the deferred tax assets will not be realized.
NET LOSS PER COMMON SHARE
Net loss per common share is computed by dividing the net
loss, after deduction for preferred dividends either accrued
or imputed, if any, by the weighted average shares
outstanding. As described in Note 10, the terms for
conversion of the Series B and C preferred stock issued during
the nine months ended December 31, 1996 afforded the holders
a conversion price lower than the market price of the common
stock at the time of issuance, in order to recognize the sales
and other market restrictions of the unregistered common stock
to be issued upon conversion. The difference between the
conversion price and market price has been reported as an
imputed dividend for purposes of calculating net loss per
common share although no assets of the Company will ever be
expended. The imputed dividend of $2,451,000 had the effect
of increasing the loss per share for the nine months ended
December 31, 1996 by $0.11. It should be noted that the
imputed dividend has been given no other accounting
recognition in the financial statements of the Company for
that period and there will be no recognition given in the
future.
NOTE 3 - ACQUISITION OF SUN WORLD INTERNATIONAL, INC.
- -----------------------------------------------------
On September 13, 1996, the Company acquired all of the
stock of a reorganized Sun World. The acquisition of Sun
World was accounted for under the purchase method of
accounting. Accordingly, the results of operations of Sun
World have been included in the consolidated financial
statements since the date of acquisition. The total purchase
price consisted of the following: (i) $179 million of assumed
bankruptcy related obligations including $156 million of
restructured secured debt with Sun World's existing lenders
(of which $5.5 million was paid by Cadiz concurrent with the
acquisition), (ii) $11 million of ongoing trade and other
accrued liabilities which were assumed by Cadiz, (iii) $3.2
million of direct acquisition costs, including 1,500 shares of
Redeemable Series A Preferred Stock valued at $1,000 per
share; and (iv) cash and stock of approximately $40 million,
including a $15 million capital contribution to Sun World
which was made with the intent of eliminating the requirement
for Sun World to have any additional debt facilities beyond
those owed to its existing secured creditors. The effect of
allocating the total purchase price to the net assets acquired
based on their estimated fair values is summarized as follows
(dollars in thousands):
Cash $ 32,113
Assets held for sale 18,049
Other current assets 45,225
Investments in partnerships 5,424
Property, plant and equipment 129,050
Other assets 3,409
-------
Total assets 233,270
-------
Prepetition bankruptcy
claims payable (13,164)
Other current liabilities (15,870)
Long-term debt (151,783)
Other liabilities (9,170)
-------
Total liabilities 189,987
-------
Net assets acquired $ 43,283
=======
No goodwill was recognized as a result of the acquisition.
The unaudited pro forma summary for the nine months ended
December 31, 1996 and the year ended March 31, 1996 reflect
combined results of operations of the Company and Sun World as
if the acquisition had occurred as of April 1, 1995. Since
prior to the current fiscal period, the fiscal year ends of
the Company and Sun World differed, for pro forma purposes,
the Sun World results of operations have been adjusted to
conform to the Cadiz reporting periods. The pro forma
adjustments include, among others, decreased interest expense
as a result of the refinancing of Sun World's existing secured
lenders and increased depreciation as a result of the purchase
price allocation. The pro forma adjustments do not reflect the
elimination of charges directly attributable to the Chapter 11
bankruptcy proceedings which are not expected to recur
subsequent to the emergence from bankruptcy effective
September 13, 1996. See footnote (a) for a more detailed
explanation of charges directly attributable to Sun World's
emergence from bankruptcy. The following pro forma financial
information is presented for informational purposes only and
is not necessarily indicative of the results of operations
that would have occurred if the acquisition had been
consummated as of the beginning of the periods presented, nor
is it necessarily indicative of the future operating results
of the Company.
The unaudited pro forma financial information is as
follows (in thousands except per share data):
Nine months ended Year ended
December 31, 1996 March 31, 1996
------------------ ------------
Actual Pro Forma Actual Pro Forma
-------- -------- -------- -----------
Revenue $ 23,780 $ 98,010 $ 1,441 $ 118,292
Net loss $(5,997) $ (2,158)(a) $ (8,487) $ (13,811)(a)
Less: Preferred
stock dividends $ (674) $ (1,828) $ -0- $ (2,438)
Imputed dividend
on preferred
stock $ (2,451) $ -0- $ -0- $ (1,959)
--------- --------- --------- ---------
Net loss
applicable to
common stock $ (9,122) $ (3,986) $ (8,487) $(18,208)
========== ========= ========== =========
Net loss per
common share $ (.44) $ (.18)(a) $ (.48) $ (.97)(a)
=========== ========== ========== ==========
Weighted-average
shares
outstanding 20,500 21,600 17,700 18,800
========= ========= ========== ==========
- -----------------------
(a) Includes for the nine months ended December 31, 1996 and the
year ended March 31, 1996, charges incurred by Sun World
totaling $4.8 million and $11.3 million, respectively, which
were directly attributable to the Chapter 11 bankruptcy
proceedings and are non-recurring in nature. Exclusion of
the non-recurring charges would have resulted in a pro forma
net income (loss) per share of $.04 and ($.37) for the nine
months ended December 31, 1996 and the year ended March 31,
1996, respectively.
NOTE 4 - ACCOUNTS RECEIVABLE
- ----------------------------
Accounts receivable consisted of the following (dollars in
thousands):
December 31, March 31,
1996 1996
-------- -------
Trade receivables $ 3,632 $ 443
Due from unaffiliated
growers 1,153 -0-
Other 3,228 -0-
------ --------
8,013 443
Less allowance
for doubtful accounts 480 -0-
------ ------
$ 7,533 $ 443
======= ========
Substantially all domestic receivables are from large
national and regional supermarket chain stores and produce
brokers and are unsecured. Amounts due from unaffiliated
growers represent receivables for services (harvest, haul
and pack) provided on behalf of growers under agreement with
Sun World and are recovered from proceeds of product sales.
Other receivables primarily include lemon crop sales,
by-product sales and accounts receivable from joint venture
partners.
Approximately $3.8 million of sales made by Sun World
from September 14, 1996 through December 31,1996 are
attributable to one national retailer.
NOTE 5 - INVENTORIES
- --------------------
Inventories consisted of the following (dollars in
thousands):
December 31, March 31,
1996 1996
------- --------
Growing crops $ 10,299 $ -0-
Pepper seed, net 2,018 -0-
Harvested product 267 -0-
Materials and
supplies 1,537 266
------- -------
$ 14,121 $ 266
======== ======
NOTE 6 - PROPERTY, PLANT AND EQUIPMENT
- ---------------------------------------
Property, plant and equipment consisted of the
following (dollars in thousands):
December 31, March 31,
1996 1996
---------- ----------
Land $ 41,358 $ 2,364
Permanent crops 71,966 8,498
Land improvements 1,839 1,851
Buildings 19,148 852
Machinery and
equipment 9,013 1,064
-------- --------
143,324 14,629
Less accumulated
depreciation (5,427) (2,948)
-------- -------
$137,897 $ 11,681
======== ========
NOTE 7 - LONG-TERM DEBT
- ------------------------
Management estimates that the fair value of its
long-term debt approximates the carrying value as the
preponderance of the obligations contain variable interest
rates or were recently issued at market rates as part of the
acquisition of Sun World. At December 31, 1996 and March
31, 1996, the carrying amount of the Company's outstanding
debt is summarized as follows (dollars in thousands):
December 31, March 31,
1996 1996
------- -------
Cadiz obligations:
Senior term bank loan, interest
payable monthly, variable
interest rate based upon LIBOR
plus 1% (6.34% at
December 31, 1996) $ 9,446 $ 8,630
Subordinated term bank loan,
interest payable
monthly, interest at 4.81% 9,100 9,100
Other 88 105
Debt discount (124) (218)
-------- --------
18,510 17,617
Sun World obligations:
Term insurance company
loan due in variable
installments through
September 13, 2006,
interest at 10.60% 77,092 -0-
Term bank loan, interest
payable monthly with
principal due in variable
installments through
September 13, 2006,
variable interest rate
based upon prime or LIBOR
(8.60% at December 31, 1996) 53,284 -0-
Note payable to insurance
company, quarterly
installments of $93
(including interest),
due September 13, 2006,
interest at 7.75% 2,531 -0-
Note payable to supplier,
monthly installments of
$104 (including interest),
due March 1, 1998,
interest at 10.00% 1,458 -0-
Note payable to finance
company, monthly
installments of $18
(including interest),
due July 1, 2002,
interest at 7.50% 989 -0-
-------- --------
153,864 17,617
Less current portion (4,753) (17,617)
--------- ---------
$ 149,111 $ -0-
=========== ===========
Annual maturities of long-term debt outstanding, excluding
$124,000 representing the unamortized portion of warrants,
on December 31, 1996 are as follows: 1997 - $4,877,000;
1998 - $24,253,000; 1999 - $9,374,000; 2000 - $11,398,000;
2001 - $11,410,000, 2002 and thereafter - $92,676,000.
CADIZ OBLIGATIONS
As of December 31, 1996, the Company's obligations to
Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A.
("Rabobank") and Henry Ansbacher & Co. Limited ("Ansbacher")
were approximately $9.1 million and $9.4 million,
respectively, both of which were to mature on January 31,
1997.
The Company reached an agreement with Rabobank which
extended the maturity date of the Company's debt facilities
with Rabobank to April 30, 1997. Additionally, the Company
reached an agreement with Rabobank which extended the
period, to April 30, 1997, in which the Company has the
ability to exercise its right to obtain two one-year
extensions. The Company has also reached an agreement with
Ansbacher whereby the maturity date of the Company's debt
facilities with Ansbacher has been extended to April 30,
1997. ING Baring (U.S.) Capital Corporation ("ING") has
purchased the $9.4 million Ansbacher debt obligation
effective March 31, 1997. The maturity date of such
obligation has been extended to April 30, 1998 with interest
at a rate of LIBOR plus 200 basis points payable at LIBOR
only semi-annually, with the remaining accrued interest
added to principal. ING granted to Cadiz the right to
obtain two one-year extensions. In connection with this
transaction, ING received warrants to purchase 75,000 shares
of Cadiz' common stock at an exercise price equal to the
market price at May 1, 1997, the time such warrants become
exercisable. Upon the exercise of the first and second
extension, the interest rate will be further adjusted and
Cadiz will be required to issue additional warrants to ING.
The Company continues to evaluate possible alternative
means of repayment and/or refinancing of the Rabobank
facility. The determination of which funding mechanism (or
combination) the Company will utilize will be evaluated on
an ongoing basis by the Company in consultation with an
investment banking firm which has been retained by the
Company. Based upon the Company's intent and ability to
refinance the Rabobank and Ansbacher debt facilities, as
evidenced by the agreements reached with Rabobank and ING,
as discussed above, the debt facilities have been classified
as long-term as of December 31, 1996. In addition to
repayment of the Rabobank facility, the Company is
considering a financing during 1997 which would be used to
refinance the existing primary debt facilities of Sun World
with terms which management would view as more favorable to
the Company and Sun World.
The terms of the Company's two one-year extension options
for the Rabobank debt are essentially the same as those
agreed upon by the parties in September 1996, except the
date required to exercise the first extension has been
changed from January 31, 1997 to April 30, 1997. As before,
it is a condition to such extension that the total
outstanding debt to Rabobank does not exceed $8,500,000 at
the time such extension becomes effective. Upon exercise of
each of the first and second extensions, the Company would
be required to pay to Rabobank certain fees. The interest
rate to be in effect during each extension period will be at
Rabobank's cost of funds plus one and one quarter percent
(1-1/4%). In September 1996, when Rabobank agreed to extend
the maturity date of this debt to April 30,1997, the
interest rate was adjusted to Rabobank's cost of funds plus
one and one quarter percent (1-1/4%) beginning February 1,
1997. As part of the September 1996 extension, the Company
paid an initial commitment fee of $150,000 and issued 30,000
new warrants to purchase the Company's common stock at $0.05
per share exercisable for five years following the date of
issuance and extended the expiration date of the outstanding
Rabobank warrants to December 31, 2000. The total value of
the warrants issued in September 1996, $114,000, has been
recorded as debt discount which is being amortized over the
remaining term of the debt. Currently, ING and Rabobank
hold senior and subordinated deeds of trust, respectively,
on substantially all of the Company's non-Sun World related
property.
Prior to the extensions discussed above, on March 15,
1995, the Company entered into an agreement whereby
Ansbacher provided a loan facility aggregating $3,000,000.
Additionally, Ansbacher agreed to accrue and capitalize
interest on the outstanding principal amount of these
advances through January 1997. In consideration for this
agreement, Ansbacher received 110,000 shares of common stock
valued at $3.50 per share. The Company also issued to
Rabobank 35,000 warrants to purchase the Company's common
stock at $.05 per share exercisable for three years
following the date of issuance. The total value of these
warrants, $121,000, has been recorded as a debt discount and
is being amortized over the remaining term of the debt. In
addition, Rabobank agreed to subordinate to Ansbacher's
senior security interests.
Prior to the extensions and the March 1995 arrangement
discussed above, the Company's outstanding obligations to
Rabobank and Ansbacher (collectively, the "Banks") were
governed by the January 1994 financing arrangements whereby
interest rates on outstanding debt to the Banks were fixed
until January 1997. Interest on the Ansbacher portion was
accrued and capitalized through January 31, 1997. Rabobank
interest was paid quarterly subsequent to December 1994,
through draw downs against a letter of credit provided by
Ansbacher for that purpose. The amount drawn under the line
of credit totalled $816,015 at December 31, 1996. In
addition, as a result of the January 1994 financing
arrangements, Rabobank returned and canceled 533,000
outstanding warrants in exchange for 175,000 new warrants to
purchase the Company's common stock at $0.05 per share
exercisable for three years following the date of issuance.
The total value of these warrants, $604,000, has been
recorded as a debt discount and was amortized over the
remaining term of the debt. In addition, Ansbacher received
100,000 shares of common stock as an arrangement fee and
50,000 shares of common stock as an advisory fee valued at
$3.50 per share. The Company also agreed to convert
$770,000 of debt to Ansbacher into 220,000 shares of common
stock.
In June 1994, the Company retired a note payable in the
amount of $249,000 to an individual at a discounted amount,
resulting in an extraordinary gain of $115,000. The note,
which originated in 1985, was scheduled to be retired with a
balloon payment in December 1996.
SUN WORLD OBLIGATIONS
Sun World's financing agreements are collateralized by
substantially all of Sun World's assets. The term
insurance company loan and term bank loan (collectively the
"Term Loans") provide for principal payments in variable
amounts at the end of March, August and December of each
year. Additionally, the Term Loans provide for interest
deferral, at the Company's option, for the Company's peak
seasonal need for working capital during the months of April
to July, which are payable at the end of August and
September.
The Company's financing arrangements require, among other
terms, minimum amounts, as defined, of working capital and
tangible net worth and minimum ratios of current assets to
current liabilities and indebtedness to net worth.
Additionally, the financing arrangements with Sun World's
secured lenders include covenants which restrict the
Company's ability to receive distributions from Sun World,
whose net assets totaled approximately $42,000,000 at
December 31, 1996.
NOTE 8 - INCOME TAXES
- ---------------------
As of December 31, 1996, the Company has a net operating
loss (NOL) carryforward of approximately $60,808,000 for
federal and $35,534,000 for state income tax purposes. Such
carryforwards expire in varying amounts through the year
2012. For financial reporting purposes, the tax benefit
resulting from utilization of such NOL carryforward will be
applied to reduce the excess of purchase price over net
assets acquired.
In accordance with the Tax Reform Act of 1986, NOL
utilization may be subject to an annual limitation. When
there is a change in ownership of more than 50 percent (as
defined) of a corporation, the use of any NOL existing at
the date of the change of ownership is limited annually to
an amount defined by law. Based upon such formula, use of
approximately $25,268,000 of the federal NOL is limited to
approximately $720,000 per year. An additional $20,153,000
of federal NOL is limited to approximately $4,508,000 per
year for an ownership change that occurred in September
1993. The remaining $15,387,000 of federal NOL is currently
available to offset federal taxable income in any future
years. No annual limitations apply to the state NOL
carryforwards which expire in various amounts through the
year 2000.
A reconciliation of the provision (benefit) for income
taxes to the statutory federal income tax rate is as follows
(dollars in thousands):
Nine Months
Ended Year Ended
December 31, March 31,
------------ ----------
1996 1996 1995
----- ---- -----
Expected federal income
tax benefit at 34% $ (1,660) $ (2,886) $ (1,561)
Net operating loss
carryforward for
financial reporting
purposes 1,790 2,405 1,468
Amortization 60 80 79
Utilization of net
operating losses (696) -0- -0-
Other nondeductible
expenses (135) 401 14
--------- -------- ---------
$ (641) $ -0- $ -0-
========== ========= ==========
Deferred taxes are recorded based upon differences between
the financial statement and tax basis of assets and
liabilities and available carryforwards. Temporary
differences and carryforwards which gave rise to a
significant portion of deferred tax assets and liabilities
as of December 31, 1996 and March 31, 1996 were as follows
(in thousands):
December 31, March 31,
1996 1996
---- -----
Deferred tax liabilities:
Net fixed asset
basis difference $ 5,786 $ -0-
Purchase accounting adjustment 440 -0-
State taxes 336 -0-
Other 4 -0-
-------- ---------
Total deferred tax liablities 6,566 -0-
-------- ---------
Deferred tax assets:
Net operating losses 23,943 21,136
Reserve for notes receivable 1,239 -0-
Capitalized legal fees 892 -0-
Basis difference in water rights 99 -0-
Net basis difference in
partnership investments (4,734) (4,337)
State taxes 1,478 (407)
Other 237 283
------- ---------
Total deferred tax assets 23,154 16,675
Valuation allowance
for deferred tax asset (20,935) (16,675)
-------- ---------
Total deferred tax assets, net 2,219 -0-
-------- ---------
Net deferred tax liability $ 4,347 $ -0-
========= =========
NOTE 9 - EMPLOYEE BENEFIT PLANS
- -------------------------------
In December 1994, the Company established a 401(k) Plan
for all employees of Cadiz. This plan contains no
eligibility requirements and contributions by the Company
are at the option of the Company on a year-to-year basis.
No contributions by the Company to this plan have been made
to-date.
Sun World established a 401(k) Plan for its salaried
employees on January 1, 1996. Employees must work 1,000
hours and have completed one year of service to be eligible
to participate in this plan.
In addition, Sun World maintains a defined contribution
pension plan covering substantially all of its employees not
covered by a collective bargaining agreement, with at least
one year of service and who have worked at least 1,000
hours. Contributions are 2% of each covered employee's
salary. There were no contributions made for the period
from September 14, 1996 to December 31, 1996. For those
hourly employees covered under a collective bargaining
agreement, contributions are made to a multi employer
pension plan in accordance with negotiated labor contracts
and are generally based on the number of hours worked.
NOTE 10 - PREFERRED AND COMMON STOCK
- ------------------------------------
During the fiscal year ended March 31, 1996, the
Company completed private placements of 2,114,157 shares of
its common stock, resulting in gross proceeds of
$10,199,000. During the nine months ended December 31,
1996, the Company issued (i) $27.6 million of newly
authorized Convertible Series A Redeemable Preferred Stock
("Series A Redeemable Preferred"); (ii) $10.0 million of
newly authorized 6% Convertible Series B Preferred Stock
("Series B Preferred"); and (iii) $3.0 million of newly
authorized 6% Convertible Series C Preferred Stock ("Series
C Preferred").
A description of each series of preferred stock
follows:
SERIES A REDEEMABLE PREFERRED
Shares of Series A Redeemable Preferred were not
convertible when issued, but became convertible into shares
of common stock, at the option of the holder, on November 12
1996 upon the filing by the Company of an Amendment to its
Certificate of Incorporation ("Amendment") increasing the
Company's authorized common stock from 24,000,000 to
45,000,000, thereby allowing the Company to reserve
sufficient shares of common stock for issuance upon
conversion. Concurrently with the filing of the Amendment,
the conversion price ("Series A Conversion Price") was set
at $3.75. Holders are entitled to cumulative dividends
payable semi-annually in cash or common stock at a rate of
six percent (6%) per annum. During the nine months ended
December 31, 1996, 200 shares of Series A Redeemable
Preferred were converted at the Series A Conversion Price
resulting in the issuance of 53,332 common shares. The
Series A Redeemable Preferred is also mandatorily
convertible in full at the option of the Company at any time
prior to six months following the filing of the Amendment at
the Series A Conversion Price provided that, as a condition
to such conversion, the Company pay to holders one full
year's worth of dividends (less the amount of any dividends
theretofore paid). Holders are entitled to a mandatory
liquidation preference equal to the initial purchase price
of $1,000 per share if conversion has not occurred prior to
September 2001. The Company will exercise its mandatory
conversion right during April 1997 which will result in the
issuance of 7,314,920 shares of common stock in May 1997 in
replacement of all Series A Redeemable Preferred. The
Series A Redeemable Preferred ranks senior and prior to the
Company's common stock and on a parity with any other class
or series of preferred stock. Except as provided by law,
holders are not entitled to vote upon any matter submitted
to a vote of the Company's stockholders.
SERIES B AND C PREFERRED
Shares of Series B and C Preferred were immediately
convertible upon issuance into shares of common stock, at
the option of the holder, at a price equal to the lower of
(a) $5.8125 per share or (b) eighty-five percent (85%) of
the average closing bid price over the ten-trading day
period ending on the day prior to the submission of any
conversion notice ("Series B/C Conversion Price"). Holders
are entitled to cumulative dividends payable upon conversion
or maturity in cash or common stock at a rate of six percent
(6%) per annum. The Company reserves the right to redeem
any shares of Series B or Series C Preferred for $11,765 per
share in cash by giving holders five days notice. Any
Series B or Series C Preferred shares outstanding one year
following issuance are mandatorily converted into common
stock at the Series B/C Conversion Price. Holders are
entitled to a liquidation preference equal to the initial
purchase price of $10,000 per share. During the nine months
ended December 31, 1996, 760 shares of Series B Preferred
and 200 shares of Series C Preferred were converted at the
Series B/C Conversion Price, resulting in the issuance of
2,627,240 common shares. The Series B and C Preferred rank
senior and prior to the Company's common stock and on a
parity with any other class or series of preferred stock.
Except as provided by law, holders are not entitled to vote
upon any matter submitted to a vote of the Company's
stockholders.
NOTE 11- STOCK-BASED COMPENSATION PLANS AND WARRANTS
- ----------------------------------------------------
STOCK OPTIONS AND WARRANTS
The Company issues options pursuant to a newly adopted
1996 Stock Option Plan (the "Plan") as well as options which
are not pursuant to a plan. The Plan provides for the
granting of up to 3,000,000 shares. All options, whether
under the Plan or not, are granted at a price not less than
100% of the fair market value at the date of option, have
vesting periods ranging from issuance date to three years,
have maximum terms ranging from three to five years and are
issued to directors, officers, consultants and employees of
the Company. During the nine months ended December 31,
1996, the Board of Directors of the Company granted options
to purchase 1,800,000 shares of the Company's common stock
at a weighted average fair value of $4.62 per share of which
1,350,000 options are conditional based upon terms of
employment and certain performance criteria.
Compensation cost for stock options is measured as the
excess, if any, of the quoted market price of the Company's
stock at the date of the grant over the amount an employee
must pay to acquire the stock. Had compensation cost for
these plans been determined using fair value, as explained
below, rather than the quoted market price, the Company's
net loss and loss per common share would have been reduced
to the following pro forma amounts (dollars in thousands):
Nine Months Year
Ended Ended
December 31, March 31,
1996 1996
----- -----
Net loss: As reported $ (5,997) $ (8,487)
Pro forma $ (6,655) $ (8,665)
Net loss
per common
share: As reported $ (.44)(a) $ (.48)
Pro forma $ (.48)(a) $ (.49)
- ------------------------------------
(a) After adjustment for accrued and imputed preferred
dividends during the nine months ended December 31,
1996 of $674 and $2,451, respectively.
The fair value of each option granted during the periods
reported was estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-
average assumptions used for the grants for the nine months
ended December 31, 1996 and the fiscal year ended March 31,
1996, respectively: risk free interest rate of 6.58% and
6.15%; expected life of expiration date less one year for
both periods; expected volatility of 52.68% and 53.87% and
no dividend yield.
The following table summarizes stock option activity for
the periods noted. All options listed below were issued to
officers, directors, employees and consultants.
Options Weighted-
Outstanding Average
Number Exercise Price
----------- --------------
Outstanding at March 31, 1994 1,801,890 $ 1.57
Granted 1,872,000 $ 4.48
Expired or cancelled (4,500) $ 4.63
Exercised (1,333,890) $ 1.49
------------
Outstanding at March 31, 1995 2,335,500 $ 3.95
Granted 607,500 $ 5.19
Expired or cancelled (7,000) $ 4.89
Exercised (145,000) $ 2.50
----------
Outstanding at March 31, 1996 2,791,000 $ 4.29
Granted 1,800,000 $ 4.62
Expired or cancelled (400,000) $ 5.50
Exercised (325,000) $ 2.79
---------
Outstanding at December 31, 1996 3,866,000(a) $ 4.44
========= =======
Options exercisable at
March 31, 1995 1,935,500 $ 4.07
========= =======
Options exercisable at
March 31, 1996 2,116,000 $ 4.34
========= =======
Options exercisable at
December 31, 1996 1,966,000 $ 4.30
========= =======
Weighted-average fair
value of options granted
during the nine-month
period ended
December 31, 1996 $ 4.62
=========
Weighted-average remaining
contractual life of options
outstanding at
December 31, 1996 3.2 years
==========
- -----------------------------
(a) Exercise prices vary from $1.25 to $5.50 and expiration
dates vary from January 1997 to September 2001.
Approximately 84% of the options outstanding at December 31,
1996 had an exercise price between $4.50 and $5.50 with a
weighted-average remaining contractual life of 3.6 years.
During the nine months ended December 31, 1996 and the
years ended March 31, 1996 and 1995, the Company issued
warrants of 30,000, 10,000 and 35,000 with weighted-average
exercise prices of $0.05, $3.55 and $0.05, respectively.
During the nine months ended December 31, 1996 and the year
ended March 31, 1995, 10,000 warrants with a weighted-average
exercise price of $3.55 and 113,700 warrants with a
weighted-average exercise price of $2.50 were exercised,
respectively. No warrants expired or were cancelled during
any of the three periods discussed. At December 31, 1996
there were 240,000 warrants outstanding all of which are
issued to Rabobank at an exercise price of $0.05 per share
and expire December 31, 2000. See Note 7 for further
discussion of these warrants.
RESTRICTED STOCK AWARD
Following the Sun World acquisition in 1996, the
Company's Chief Executive Officer was awarded a stock bonus
of 125,000 shares of restricted common stock at no cost.
The issuance of these shares is dependent, with respect to
50,000 shares, upon the achievement of certain performance
criteria. The remaining 75,000 shares are issuable in equal
annual installments over a three year period based upon the
continued employment of the officer. Compensation expense,
representing the market value at the date of grant, will be
recognized as earned over the period of service.
NOTE 12 - COMMITMENTS AND CONTINGENCIES
- ---------------------------------------
In 1995, Sun World entered into an agreement with its
major corrugated container supplier in connection with a
prepetition liability settlement. The settlement stipulated
that the original agreement to purchase containers from the
supplier would remain in effect until March 21, 1998 and
required the Company to issue a secured note payable to the
supplier (see Note 7). Thereafter, the original agreement
will automatically renew unless either party gives written
notice ninety days prior to the end of the renewal period.
In December 1995, the Company filed an action relative
to the proposed construction and operation of a landfill to
be located adjacent to the Company's Cadiz property (the
"Rail-Cycle Project"), with the Superior Court in San
Bernardino County, California. The action challenges the
various decisions by the County of San Bernardino relative
to the Rail-Cycle Project. Named in this action, in
addition to the County of San Bernardino, were the Board of
Supervisors of the County of San Bernardino, three
individual members of the Board of Supervisors, an employee
of the County and Rail-Cycle, L.P. whose general partner is
controlled by WMX Technologies, Inc. (formerly Waste
Management, Inc.). The Company alleges that the actions of
the County of San Bernardino did not comply with the
guidelines prescribed by the California Environmental
Quality Act and violated state planning and zoning laws.
The action seeks to set aside the county certification of
the EIR/EIS and approval of the proposed Rail-Cycle project.
The Company continues to believe the proposed Rail-Cycle
project, if constructed and operated as currently designed,
poses environmental risks both to the Company's agricultural
operations at Cadiz and to the groundwater basin underlying
the Cadiz property. Accordingly, the Company intends to
pursue a claim for damages against the County of San
Bernardino and Rail-Cycle and, therefore, the action also
seeks compensatory damages in excess of $75 million. The
action is currently in the discovery phase. The court has
set July 11, 1997 to commence a hearing on the Company's
land use and regulatory claims. A trial on the issue of the
Company's monetary damages will be scheduled at a later
date. The Company intends to continue vigorously prosecuting
its claims. The Company incurred $394,000 and $1,919,000
during the nine months ended December 31, 1996 and the year
ended March 31, 1996, respectively, in connection with this
matter.
In the normal course of its agricultural operations,
the Company handles, stores, transports and dispenses
products identified as hazardous materials. Regulatory
agencies periodically conduct inspections and, currently,
there are no pending claims with respect to hazardous
materials.
The Company is involved in other legal and
administrative proceedings and claims. In the opinion of
management, the ultimate outcome of each proceeding or all
such proceedings combined will not have a material adverse
impact on the Company's financial statements.
* * *
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders of
Sun World International, Inc.
We have audited the accompanying consolidated balance sheets of Sun
World International, Inc. and subsidiaries (the "Company") as of December
31, 1995 and 1994, and the related consolidated statements of operations and
accumulated deficit and of cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly in all
material respects the financial position of the Company as of December 31,
1995 and 1994, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting
priciples.
As discussed in Note 1 to the consolidated financial statements, the Company
and certain of its subsidiaries filed voluntary petitions for relief under
Chapter 11 of the Bankruptcy Code on October 3, 1994. Since that date, the
companies had been operating under Bankruptcy protection and had been
negotiating with all parties to the Bankruptcy proceedings in an effort to
develop a Plan of Reorganization (the "Plan"). On July 12, 1996, the
Bankruptcy Court confirmed the Plan, which became effective on September
13, 1996. Under the Plan, the Company is required to comply with certain
terms and conditions as more fully described in Note 1.
/s/ Deloitte & /Touche LLP
- --------------------------
Fresno, California
September 20, 1996
<TABLE>
SUN WORLD INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<CAPTION>
December 31.
------------------------------
1995 1994
ASSETS -------- ---------
<S> <C> <C>
Current assets:
Cash $ 23,333 $ 11,836
Accounts receivable, net 13,879 11,386
Inventories 12,710 13,875
Prepaid expenses and other 1,353 1,521
--------- -------
Total current assets 51,275 38,618
Investment in partnerships 1,948 2,220
Property, plant and equipment, net 81,680 112,088
Assets held for sale 17,969 -0-
Other assets 4,652 4,762
--------- -------
Total assets $ 157,524 $157,688
========= =======
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 13,926 $ 10,566
Accrued liabilities 2,074 2,588
Long-term debt due in one year 1,063 -0-
--------- --------
Total current liabilities 17,063 13,154
Long-term debt 1,458 -0-
Deferred revenue and other 79 292
Deferred income taxes 7,500 7,500
Liabilities subject to compromise under
reorganization proceedings 177,455 174,036
Commitments and contingencies
Stockholders' deficit:
Convertible 10% preferred stock,
75,000 shares authorized;
38,501 shares issued and
outstanding (liquidation
preference $11,550,000) 11,550 11,550
Common stock, $1 par value,
300,000 shares authorized;
42,000 shares issued and outstanding 42 42
Additional paid-in capital 29,350 29,350
Accumulated deficit (86,973) (78,236)
--------- ---------
Total stockholders' deficit (46,031) (37,294)
---------- --------
Total liabilities and
stockholders' deficit $ 157,524 $157,688
========= ========
<FN>
See accompanying notes to the consolidated financial statements.
</FN>
</TABLE>
<TABLE>
SUN WORLD INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
(Dollars in thousands)
<CAPTION>
Years ended December 31,
-------------------------
1995 1994
----------- ---------
<S> <C> <C>
Revenues $117,623 $127,169
-------- --------
Costs and expenses:
Cost of sales 85,546 112,661
General and administrative 6,287 11,368
Permanent crop abandonments 1,560 1,312
-------- -------
Total operating costs 93,393 125,341
-------- --------
Operating profit 24,230 1,828
Provision for loss on asset disposals 4,868 2,136
Other expense/(income) 686 (178)
Interest expense 16,756 15,442
-------- --------
Income (loss) before reorganization
items 1,920 (15,572)
-------- --------
Reorganization items:
Professional fees 7,976 4,693
Adequate protection fees 3,214 2,259
Debt issuance costs 0 1,487
Interest income (533) (107)
-------- ----------
Total reorganization items 10,657 8,332
-------- ------------
Net loss (8,737) (23,904)
Accumulated deficit beginning of year (78,236) (54,332)
--------- -----------
Accumulated deficit end of year $(86,973) $(78,236)
========= =========
<FN>
See accompanying notes to the consolidated financial statements.
</FN>
</TABLE>
<TABLE>
SUN WORLD INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<CAPTION>
Years Ended December 31,
1995 1994
-----------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (8,737) $ (23,904)
Adjustments to reconcile net
loss to cash provided
by operating activities:
Depreciation and amortization 6,705 7,037
Loss on sale of property,
plant and equipment 605 162
Writeoff of debt issuance costs 0 1,487
Provision for loss on disposal
of assets 4,868 2,136
Permanent crop abandonments 1,560 1,312
Share of partnership operations (400) 738
Changes in operating assets and
liabilities:
(Increase)/decrease in
accounts receivable (2,493) 9,954
Decrease in inventories 1,165 7,588
Decrease in prepaid expenses
and other 168 104
Increase in accounts payable 3,360 10,565
(Decrease)/increase in accrued
liabilities (514) 2,588
(Decrease) in deferred revenue
and other (213) (62)
-------- --------
6,074 19,705
-------- --------
Increase/(decrease) in liabilities
subject to compromise under
reorganization proceedings 6,038 (2)
-------- --------
Net cash provided by operating
activities 12,112 19,703
-------- --------
Cash flows from investing activities:
Additions to property, plant
and equipment (929) (2,623)
Additions to developing crops (1,355) (2,341)
Partnership distributions 672 379
(Increase)/decrease in other assets (436) 13
Proceeds from disposal of property,
plant and equipment 1,530 75
-------- --------
Net cash used in
investing activities (518) (4,497)
-------- ---------
Cash flows from financing activities:
Payments of long-term debt
subject to compromise (97) (696)
Proceeds from short-term borrowings 91,303 16,431
Payments on short-term borrowings (91,303) (20,594)
-------- ---------
Net cash used in financing
activities (97) (4,859)
-------- ----------
Net increase in cash 11,497 10,347
-------- ----------
Cash at beginning of year 11,836 1,489
-------- -----------
Cash at end of year $ 23,333 $ 11,836
======== ==========
<FN>
See accompanying notes to the consolidated financial statements.
</FN>
</TABLE>
SUN WORLD INTERNATIONAL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND REORGANIZATION UNDER CHAPTER 11
Sun World International, Inc. ("SWII") and its subsidiaries
(collectively the "Company") own and farm approximately 21,000
acres in two major growing areas of California, the Southern San
Joaquin Valley and Coachella Valley. Fresh produce, including
table grapes, tree fruit, peppers and watermelon are marketed,
packed and shipped to food wholesalers and retailers located
throughout the United States and in certain foreign countries. Export
sales accounted for approximately 7% of the Company's sales for the
years ended December 31, 1995 and 1994. As of December 31,
1995, the Company owned and operated eight cold storage and/or
packing facilities located in California. In 1996, three of those
facilities were sold.
On October 3,1994, SWII and certain of its subsidiaries filed
voluntary petitions for relief under Chapter 11 of the Bankruptcy
Code. Since that date, the companies had been operating under
Bankruptcy protection and had been negotiating with all parties to
the bankruptcy proceedings in an effort to develop a Plan of
Reorganization (the "Plan"). On July 12, 1996, the Bankruptcy
Court confirmed the Plan, which became effective on September 13,
1996 (the"Effective Date"). Pursuant to the Plan, SWII, Sun World,
Inc., Coachella Growers and Sun Desert, Inc. (all wholly-owned
subsidiaries of SWII) emerged from the Chapter 11 Bankruptcy
proceedings and 100% of SWII's stock (both preferred and common)
was acquired by Cadiz Land Company, Inc. ("Cadiz"). The Plan
also provided for, among other things, the cancellation of certain
indebtedness in exchange for cash, elimination of all intercompany
debts, new indebtedness, issuance of new equity securities, the
discharge of other prepetition claims, the cancellation of all
prepetition ownership interests in the Company, the settlement of
certain claims and mutual releases of certain claims of the Company
and other persons or entities (including certain affiliated persons or
entities), the assumption or rejection of executory contracts and
unexpired leases to which the Company was a party, and the
establishment of procedures for the selection of a Board of Directors
for the Company. The Plan did not provide for the reorganization of
the estate or the resolution of outstanding third-party claims and
equity interests for AAI Services, Inc., a wholly-owned subsidiary of
SWII.
Cadiz acquired all of the capital stock of the Company for total
consideration of approximately $179 million including
approximately $150 million which will be owed to the Company's
existing secured lenders through issuance of new notes. In addition,
Cadiz made a cash capital contribution of $15 million to the
Company to provide additional operating capital.
The following table summarizes the recoveries to the prepetition
creditors and equity holders pursuant to the Plan based upon the
Company's estimate of total claims to be allowed as of September
13, 1996 (dollars in thousands) (unaudited):
Recovery
-----------------------------------------
Estimated Cadiz
Allowed Claims Long-Term Common Total
Claims/Interest Amount (1) Cash Debt Stock Recovery
- --------------------------------------------------------------------------
Administrative,
Tax and Priority $ 5,000 $ 5,000 $ 0 $ 0 $ 5,000
Credit Agricole
Secured Debt 58,621 3,500 55,121 0 58,621
John Hancock
Secured Debt 93,084 2,000 91,084 0 93,084
Zenith Secured
Debt 3,065 250 2,575 240 3,065
Other Secured
Debt 1,050 0 1,050 0 1,050
General Unsecured
Claims 20,800 12,500 0 0 12,500
Convertible
Preferred Stock
and Common Stock 11,592 3,000 0 2,487 5,487
-------- --------- -------- ------- --------
$ 193,212 $ 26,250 $149,830 $ 2,727 $178,807
======= ========= ======== ======= ========
(1) Excludes any recovery to the Internal Revenue Service for claims
as further discussed by Note 14.
Management believes that the aggregate fair value of the Company's
long-term debt issued pursuant to the Plan approximates the
aggregate book value.
The Plan provided for a consolidation of the assets and liabilities of
SWII and its subsidiaries and pursuant to the Plan, SWII was merged
into Sun World, Inc. with the surviving corporation retaining the
name of Sun World International, Inc. All payments and
distributions required by the Plan to be made by SWII or any of its
subsidiaries in respect of prepetition claims have been made or
provided for, and SWII and its subsidiaries expect to have no further
obligation with respect to any prepetition claims.
Cadiz intends to account for this acquisition using the purchase
method which will materially change the amounts reported in the
accompanying consolidated balance sheet as of December 31, 1995.
The consolidated financial statements do not give effect to
adjustments of assets or liabilities, or classifications of such
amounts, which may be necessary as a consequence of the Cadiz
acquisition.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING The consolidated financial statements
include the accounts of SWII and its subsidiaries, substantially all of
which are wholly owned. All significant intercompany transactions
have been eliminated.
The Company has accounted for all transactions related to the
Chapter 11 proceedings in accordance with Statement of Position 90-7,
"Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code," issued by the American Institute of Certified
Public Accountants. Accordingly, liabilities subject to compromise
under reorganization proceedings have been segregated on the
consolidated balance sheets and are recorded at the amounts that
have been or are expected to be allowed based upon known claims.
INVENTORIES Growing crops, pepper seed, and materials and
supplies are stated at the lower of cost, on a first-in, first-out (FIFO)
basis, or market. Growing crops inventory includes direct costs and
an allocation of indirect costs.
INVESTMENT IN PARTNERSHIPS Wholly-owned subsidiaries
of the Company have investments in various partnerships. The
Company's two principal partnerships are Sun Date and American
Sunmelon, both of which are 50% owned. American Sunmelon is
engaged in proprietary seed development, production, and marketing
of seedless watermelons. Sun Date is engaged in the marketing,
processing, and farming of dates. These partnership investments are
accounted for using the equity method.
PROPERTY, PLANT AND EQUIPMENT Property, plant and
equipment is stated at cost for all acquisitions subsequent to
September 30, 1983. All property, plant and equipment acquired
prior to September 30, 1983 was restated to estimated fair value at
that date in connection with the Company's quasi-reorganization.
The Company capitalizes the direct and certain indirect costs of
planting and developing orchards and vineyards until they reach
maturity, which varies by crop and ranges from three to seven years.
Depreciation on trees and vines commences in the year commercial
production is achieved.
The Company computes depreciation applicable to property, plant
and equipment on the straight-line method using the following
estimated useful lives:
Buildings and improvements 10-45 years
Machinery and equipment 3-25 years
Permanent crops 10-20 years
Upon the sale, retirement or abandonment of property, plant and
equipment, applicable gains or losses are recognized in income.
ASSETS HELD FOR SALE In conjunction with the Company's
1996 Business Plan, specific properties were identified to be sold.
These properties, which are included in the accompanying
consolidated balance sheet at the lower of cost or net realizable
value, consist of both farmland and facilities that were determined
not vital to the Company's ongoing operations. The Company
has sold certain facilities in 1996 including facilities located in
Reedley, Arvin and Thermal.
OTHER ASSETS Other assets include professional fees and
other costs to establish and defend trademark and patent rights.
These assets are amortized over a 10-year period on a straight-line
basis. Also included in other assets are water rights that were
obtained in connection with a 1988 divestiture of the Company's
interest in a partnership. The Company is amortizing these water
rights over 97 years using the straight-line method.
PROVISION FOR LOSS ON ASSET DISPOSALS In 1995 and
1994, the Company recorded provisions for loss on disposal of
assets totaling $4,868,000 and $2,136,000, respectively. Such
write-downs represented amounts necessary to reduce the assets to
their expected net realizable value.
REVENUE RECOGNITION The Company recognizes crop
sale revenue after harvest and delivery to customers. Packing
revenues are recognized as units are packed. Marketing
commission revenues are recognized at the time of product
shipment.
REORGANIZATION ITEMS The net expenses incurred as a
result of the Chapter 11 filing and subsequent reorganization
proceedings have been segregated from recurring operations in the
consolidated statements of operations.
INCOME TAXES Deferred income taxes on the difference
between financial statement basis and tax basis of assets and
liabilities are provided for at the statutory rates.
SUPPLEMENTAL CASH FLOW INFORMATION Cash
payments for interest were $6,258,000 and $6,673,000 in the years
ended December 31, 1995 and 1994, respectively. In 1995 and
1994 the Company paid income tax, net of refunds, of $13,000
and $633,000, respectively.
RESEARCH AND DEVELOPMENT The Company incurs
costs to research and develop new varieties of proprietary
products. Research and development costs are expensed as
incurred. Such costs were approximately $393,000 and
$1,127,000 for the years ended December 31, 1995 and 1994,
respectively.
USE OF ESTIMATES IN PREPARATION OF FINANCIAL
STATEMENTS The preparation of consolidated financial
statements in conformity with generally accepted accounting
principles requires management to make estimates and
assumptions that affect the amounts reported in the financial
statements and related notes. Actual results could differ from
these estimates.
RECENTLY ISSUED ACCOUNTING STANDARDS In March
1995, Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of" ("SFAS 121") was issued.
SFAS No. 121 establishes new guidelines in accounting for the
impairment of long-lived assets, including identifiable intangibles.
When circumstances indicate that the carrying amount of an asset
may not be recoverable as demonstrated by estimated future cash
inflows, an impairment loss shall be recorded based on fair value.
The Company has not yet adopted SFAS No. 121 but believes that
its impact when adopted will not be material.
3. ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following (dollars
in thousands):
December 31,
1995 1994
---------- ---------
Trade receivables $ 6,791 $ 4,107
Due from unaffiliated
growers 1,962 903
Due from affiliated
growers 257 840
Other 5,051 5,904
--------- ---------
14,061 11,754
Less allowance for
doubtful accounts 182 368
--------- ---------
$13,879 $ 11,386
====== ==========
Substantially all domestic trade receivables are from large
national and regional supermarket chain stores and produce
brokers and are unsecured. The amounts due from growers
represent receivables for services (harvest, haul and pack)
provided on behalf of growers under agreement with the
Company and are recovered from proceeds of product sales.
Other receivables primarily include lemon crop sales, by-product
sales, and amounts receivable from joint venture partners.
4. INVENTORIES
Inventories consisted of the following (dollars in thousands):
December 31,
-------------------
1995 1994
---------- --------
Growing crops $ 8,337 $ 9,103
Pepper seed 2,328 2,950
Materials and supplies 2,045 1,822
-------- -----------
$ 12,710 $ 13,875
======= ======
Pepper seed is net of valuation allowance of $395,000
and $375,000 at December 31, 1995 and 1994,
respectively, to reduce such inventories to their net
realizable value.
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following
(dollars in thousands):
December 31,
----------------
1995 1994
----------- -----------
Land $ 27,446 $ 39,194
Permanent crops 42,837 49,217
Buildings and improvements 27,860 38,607
Machinery and equipment 19,485 29,562
----------- ----------
117,628 156,580
Less accumulated
depreciation 35,948 44,492
----------- ----------
$ 81,680 $ 112,088
======== ============
6. INCOME TAXES
Significant components of the Company's deferred income tax
assets and liabilities as of December 31, 1995 and 1994 are as
follows (dollars in thousands):
1995 1994
---------- -------------
Deferred tax liabilities:
Net fixed asset basis
difference $ 23,630 $ 22,122
State taxes 181 181
-------- --------
Total deferred tax
liabilities 23,811 22,303
-------- --------
Deferred tax assets:
Net operating losses 29,779 28,655
Tax credit carryforwards 1,604 1,760
Reserve for notes
receivable 5,769 5,769
Capitalized legal fees 2,789 2,789
Basis difference in
water rights 1,198 1,198
Deferred crop costs 484 1,685
Allowance for doubtful
accounts 79 159
Basis difference in
partnership investments 40 12
State taxes 353 353
-------- --------
Total deferred tax
assets 42,095 42,380
Valuation allowance for
deferred
tax assets (25,784) (27,577)
Total deferred tax
assets, net 16,311 14,803
-------- --------
Net deferred
tax liability $ 7,500 $ 7,500
========= =========
The Company has provided a valuation allowance for the tax
benefits of deferred tax assets which may not be realizable.
Income tax expense (benefit) varies from the amount
computed by applying the statutory federal income tax rate to
the income (loss) before income taxes. The reasons for this
difference are as follows:
December 31,
-----------------
1995 1994
-------- ----------
Statutory federal rate (34.0)% (34.0)%
State taxes, less
federal benefit (6.2)% (6.2)%
Valuation allowance 40.2 % 40.2 %
----------- ----------
Effective rate 0.0 % 0.0 %
========== ==========
At December 31, 1995, the Company had net operating loss
carryforwards for federal and state income tax purposes of
approximately $40,439,000 and $8,032,000, respectively, which
expires at various dates from 1997 through 2010. In addition, a
wholly-owned subsidiary acquired in 1989 has net operating loss
carryforwards of approximately $44,950,000 for federal tax
purposes, which are subject to an annual limitation for a fifteen-
year period. The federal loss carryforwards expire at various
dates from 2001 through 2004.
The Company had investment and research and experimental tax
credit carryforwards of approximately $747,000 which expire
from 1996 to 2007. The Company also had alternative minimum
tax carryforwards of approximately $857,000.
The utilization of the net operating loss and credit carryforwards
could be limited or eliminated by a reduction in liabilities as a
result of the Plan and/or by changes in the Company's stock
ownership resulting from the Cadiz acquisition.
7. FINANCING
Pursuant to the Plan, the Company issued new debt (along with
Cadiz common stock) to settle prepetition long-term debt. The
following is a discussion of the Company's financing
arrangements prior to and as of the Effective Date.
Prepetition Financing:
Debt and other financing arrangements of the Company at
December 31, 1995 and 1994 were as follows, based on the
original contractual maturities:
December 31,
------------------
(in thousands)
1995 1994
------------ -------------
Secured Debt:
Revolving credit facility $ 34,277 $ 34,277
Note payable to an insurance
company, monthly
installments of $824,000
(includes interest), due
on November 1, 2000,
interest at 10.6%
(default interest at
12.6%) 77,234 77,234
Note payable to bank,
semi-annual installments
of $750,000, due November
30, 1999, interest
at prime plus 1.25%
(9.75% at December 31,
1995), payable quarterly
(default interest at
prime plus 3.25%) 5,793 5,793
Note payable to bank,
annual installments of
$1,500,000 due November
30, 1996, interest
at prime plus 1.25%
(9.75% at December 31,
1995), payable quarterly
(default interest at
prime plus 3.25%) 10,500 10,500
Note payable to insurance
company, monthly
installments of $60,000
(includes interest),
interest at 12.9% 2,838 2,694
Unsecured Debt
Note payable to bank,
due July 1, 1995, interest
only at 10.0%, payable
quarterly 1,500 1,500
Note payable to partnership,
due September 1, 1994,
interest at 13.25% 1,150 1,150
------- -------
$133,292 $133,148
========= ========
All of this prepetition debt has been classified in the
accompanying consolidated balance sheets as "Liabilities
subject to compromise under reorganization proceedings." As
a result of the bankruptcy, all required principal payments on
prepetition debt were suspended. For the period subsequent to
the Petition Date, interest on the unsecured prepetition debt
was not paid or accrued. Interest on secured prepetition debt
continued to be accrued in the period subsequent to the
Petition Date at the default interest rates. Pursuant to
Bankruptcy Court order, adequate protection payments were
made on the secured debt amounting to $3,214,000 and
$2,259,000 for the years ended December 31, 1995 and 1994,
respectively. "Liabilities subject to compromise under
reorganization proceedings" included $19,248,000 and
$9,098,000 related to unpaid interest accrued on secured debt
for the years ended December 31, 1995 and 1994,
respectively.
These credit facilities described above were collateralized by
substantially all of the assets of the Company. The Company
was in default on substantially all of the covenants under these
credit facilities as of December 31, 1995 and 1994.
Debtor In Possession Financing:
The Bankruptcy Court entered an order on January 20, 1995
approving a debtor in possession (DIP) financing agreement
for the Company in an aggregate amount of $30,000,000. The
DIP financing granted to the DIP lender security interests in
all the real and personal property of the Company including all
contract accounts, contract rights, fixtures, copyrights, patents
and trademarks. Under the terms of the loan and the
Bankruptcy Code, the security interest of the DIP lender had
priority over virtually all prepetition claims and Chapter 11
administrative expense claims. The DIP financing also
contained a clause to provide adequate protection to certain
prepetition secured lenders in the form of (a) replacement liens
and (b) payment of specified amounts on the prepetition
secured debt to cover interest and professional fees incurred by
the lenders.
Interest on the DIP borrowings was prime plus 1.25%. During
1995, the Company borrowed and repaid up to $21,181,000
under this facility and had no balance outstanding at December
31, 1995. Total interest and fees paid during 1995 related to
the DIP facility was $681,000.
The DIP facility was amended and restated as of February 28,
1996 to extend the facility through the 1996 operating season
in an aggregate amount of $20,000,000. The DIP facility
expired when the Company emerged from bankruptcy on
September 13, 1996.
Postpetition Financing:
On or about October 27, 1995, the Bankruptcy Court issued
the Weyerhaeuser Order pursuant to which the Company
assumed certain agreements with Weyerhaeuser for corrugated
shipping containers and related financing. Pursuant to the
Weyerhaeuser Order, the Company was required to make
certain adequate protection payments and entered into a
secured note which had an outstanding balance at December
31, 1995 as follows:
(in thousands)
Note payable to supplier,
monthly installments of $ 2,521
$104,000 (includes interest),
due March 1, 1998,
interest at 10.00%.
Less: current portion 1,063
----------
$ 1,458
===========
Plan Financing:
Pursuant to the Plan, the Company entered into new financing
agreements totaling approximately $150 million with its
existing secured lenders which are collateralized by
substantially all of the assets of the Company. Annual
maturities of the debt outstanding upon emergence from
bankruptcy on September 13, 1996 (including the postpetition
financing) is as follows: 1996-$4,502,000; 1997-$8,789,000;
1998-$7,970,000; 1999-$9,369,000; 2000-$11,377,000; 2001
and thereafter - $110,322,000.
8. PREFERRED STOCK
In May 1985, the Board of Directors of the Company
designated 40,000 shares of Preferred Stock as Series I
Preferred Stock. Each share of Series I Preferred Stock was
convertible into one share of Common Stock and was entitled
to receive cash dividends of $30 per share for each of the fiscal
years ending on or after September 30, 1987. Such dividends
were cumulative under certain circumstances and included
other rights such as a liquidation preference per share equal to
the sum of $300, plus all accrued but unpaid dividends.
Pursuant to the Plan, all prepetition ownership interests of the
Company, including the Series I Preferred Stock, as of the
Effective Date were sold to Cadiz. At that time, accumulated
undeclared dividends on the preferred stock of $10,395,000
and $9,240,000 at December 31, 1995 and 1994 were released.
9. LEASING ARRANGEMENTS
The Company leases certain parcels of land, facilities,
machinery, and equipment under noncancelable operating
leases which expire in various years through 2000.
At December 31, 1995, future minimum lease commitments
under noncancellable leases (exclusive of property taxes and
insurance) consist of the following (dollars in thousands):
Facilities &
Land Equipment Total
-------- ----------- ---------
1996 $ 119 $ 1,543 $ 1,662
1997 114 348 462
1998 114 60 174
1999 0 9 9
2000 0 9 9
--------- ------ -------
$ 347 $ 1,969 $ 2,316
======== ======= ========
Operating lease payments for the years ended December 31,
1995 and 1994 were $2,554,000 and $4,595,000, respectively.
10. LIABILITIES SUBJECT TO COMPROMISE UNDER REORGANIZATION PROCEEDINGS
Liabilities subject to compromise under reorganization
proceedings consisted of the following as of December 31
(dollars in thousands):
1995 1994
------------ -----------
Accounts payable $ 20,792 $ 27,667
Interest payable 19,248 9,098
Other accrued liabilities 4,123 4,123
Long-term debt (see
Note 7) 133,292 133,148
----------- -----------
$ 177,455 $ 174,036
========= ==========
11. COMMITMENTS
DEBT GUARANTEE The Company was co-guarantor with
its partner on a bank loan to the Sun Date partnership (see
Note 13). The loan totaled $1,150,000 at December 31, 1995
and 1994. In connection with the Sun Date settlement during
the bankruptcy proceeding, the Company will be released from
this bank guarantee and Cadiz has agreed to guarantee the
bank loan up to a maximum of $350,000.
PURCHASE AGREEMENT In 1995, the Company entered
into an agreement with its major corrugated container supplier
in connection with a prepetition liability settlement. The
settlement stipulated that the original agreement to purchase
containers from the supplier would remain in effect until
March 21, 1998 and required the Company to issue a secured
note payable to the supplier (see Note 7). Thereafter, the
original agreement will automatically renew unless either
party gives written notice ninety days prior to the end of the
renewal period.
12. RETIREMENT PLANS
The Company has a defined contribution pension plan
covering substantially all of its employees not covered by a
collective bargaining agreement, with at least one year of
service and who have worked at least 1,000 hours.
Contributions are 2% of each covered employee's salary and
totaled approximately $207,000 and $300,000 for the years
ended December 31, 1995 and 1994, respectively. For those
hourly employees covered under a collective bargaining
agreement, contributions are made to a multiemployer pension
plan in accordance with negotiated labor contracts, are
generally based on the number of hours worked, and totaled
approximately $11,000 and $25,000 for the years ended
December 31, 1995 and 1994, respectively.
13. RELATED PARTY TRANSACTIONS
AG-ACCOUNTING, INC. The Company has entered into
agreements to market products obtained from growers in
which a former major stockholder/director of the Company
has financial interests and/or farm management contracts.
Ag-Accounting, Inc. ("Ag-Accounting"), which is wholly owned
by this former stockholder/director, provides accounting
services to these affiliated growers. The Company recognized
marketing commission revenues from these affiliated growers
of $104,000 and $436,000 for the years ended December 31,
1995 and 1994, respectively. The Company makes crop
advances and charges for some or all of harvesting, hauling,
packing and marketing services provided to these growers.
These charges are deducted from crop proceeds paid to
growers. As of December 31, 1994, the amount due Ag-Accounting
from the Company was $404,000 (none in 1995). Amounts due the
Company from Ag-Accounting totaled $233,000 and $634,000 as
of December 31, 1995 and 1994, respectively. The Company bills
the affiliated growers monthly for services and remits net
proceeds to each grower for the crops marketed by the Company.
In certain instances, the Company has also obtained financing for
these affiliated growers.
Costs related to a product incentive program and certain
payroll and office expenses of $395,000 and $503,000 were
incurred on behalf of Ag-Accounting for the years ended
December 31, 1995 and 1994, respectively.
In 1993, the Company determined that receivables due from
Ag-Accounting and growers affiliated with Ag-Accounting in
the amount of $8,652,000 were uncollectible. These amounts
which were written off represent advances made by the
Company to Ag-Accounting for operating expenses and to Ag-
Accounting ranches for growing and harvesting costs. Under
the Plan, Ag-Accounting, the majority stockholder/director,
and the affiliated growers have been released from all claims
and liabilities related to the Company.
ANTHONY VINEYARDS, INC. Anthony Vineyards, Inc. is
a farming entity owned by a former officer and director of the
Company. The Company entered into marketing agreements
and provided packing and marketing services to this grower.
The Company makes grower advances for harvesting, hauling,
and packing materials which are recovered from the grower at
the time the Company receives the crop proceeds. The
Company recognized marketing commission revenues from
Anthony Vineyards of $1,277,000 and $980,000 for the years
ended December 31, 1995 and 1994, respectively. In addition,
at December 31, 1994, the Company had liabilities owed to
Anthony Vineyards, Inc. of $841,000 (none in 1995). The
amounts due the Company from Anthony Vineyards as of
December 31, 1995 and 1994 were $26,000 and $125,000,
respectively.
STOCKHOLDERS In 1993, the Company determined that
$3,771,000 in receivables due from stockholders were
uncollectible and were written off. As part of the Plan, all
liabilities and claims between the former stockholders and the
Company have been released.
LSL BIOTECHNOLOGIES, INC. LSL Biotechnologies,
Inc. (LSL) is an entity that develops, produces and markets
seed varieties in which former officers and/or directors of the
Company have or had ownership interests. The Company and
LSL entered into growing agreements and seed purchase
contracts related to peppers and tomatoes. For the year ended
December 31, 1994, the Company made royalty payments to
LSL of $1,339,000 (none in 1995). During the bankruptcy
proceeding, LSL made significant claims for prepetition and
postpetition amounts owed by the Company under the
agreements which the Company disputed. On September 9,
1996, an agreement between the Company and LSL was
reached that settled all LSL pre and postpetition claims against
the Company. The settlement included the allowance of the
prepetition unsecured claim for $900,000, and postpetition
administrative claim of $650,000 for postpetition royalties
owed to LSL for pepper and tomato sales. In addition, the
Company agreed to convey the trade name and trademark Le
Rouge Royale(R) to LSL and obtained a license to utilize the
trademark until December 31, 1997 for an additional royalty
of $100,000.
THE IRVINE COMPANY The Company had orchard and
row crop farming, packing and marketing agreements with
The Irvine Company. A former major stockholder/director of
the Company owned stock in and was a director of The Irvine
Company, a large land owner and developer in Southern
California. In 1993, the orchard agreement was terminated
and in 1994 the row crop agreement was terminated. As of
December 31, 1995 and 1994, the Company had liabilities
owed to The Irvine Company, primarily for land rent and crop
proceeds, of $4,946,000 and $5,400,000, respectively. In
connection with the Plan, the Company agreed to allow a
claim of $5,000,000 in settlement of Irvine's prepetition
liability and claim against the Company.
AMERICAN SUNMELON For the years ended December
31, 1995 and 1994, the Company made payments to American
Sunmelon of $849,000 and $1,101,000, respectively, primarily
for royalty payments and seed purchases. As of December 31,
1995 and 1994, the Company had liabilities owed to American
Sunmelon of $128,000 and $210,000, respectively. The
Company's share of partnership income from American
Sunmelon was $1,111,000 and $480,000 for the years ended
December 31, 1995 and 1994, respectively.
SUN DATE On September 9, 1996, the Company and Sun
Date entered into an agreement that included a release or
settlement of all prepetition claims between Sun Date and the
Company, and included provisions for the Company to sell the
dates produced by Sun Date. A former major
stockholder/director of the Company, prior to September 13,
1996, had ownership interests in various date farming
partnerships that provided unprocessed dates to Sun Date. For
the years ended December 31, 1995 and 1994, the Company
recognized marketing commissions from date sales of
$116,000 and $68,000, respectively. In addition, as of
December 31, 1995 and 1994, the Company had liabilities
payable to Sun Date of $1,175,000 and $1,546,000,
respectively, including a $1,150,000 prepetition note payable
which was settled as described above. The Company's share
of the partnership loss from Sun Date was $677,000 and
$669,000 for the years ended December 31, 1995 and 1994,
respectively.
14. CONTINGENCIES
The Internal Revenue Service (IRS) has filed claims against
the Company, and certain subsidiaries, for taxes refunded to
the Company for certain workers that the IRS claims were
employees. The Company contends that the workers are
excluded from the definition of employment under the Internal
Revenue Code. A complaint has been filed by the Company
in the Bankruptcy Court seeking refunds of taxes paid on
account of agricultural workers for other years. The Company
intends to object to the claims asserted by the IRS. The total
amount of claims filed against the Company are approximately
$4,300,000 including tax deficiency, interest and penalties. At
December 31, 1995 and 1994, the Company has recorded a
reserve for these claims representing management's best
estimate of the ultimate amount that will be paid.
On January 3, 1996, the Company brought an action against
Corona College Heights Orange & Lemon Association (CCH)
alleging breach of contract, intentional interference with
economic advantage and unfair competition. On April 17,
1996, CCH counterclaimed against the Company, alleging
breach of contract, breach of fiduciary duty, negligence, fraud
and deceit, negligent misrepresentation, constructive fraud,
intentional interference with prospective economic advantage,
unjust enrichment and constructive trust and accounting. This
matter is in the early stages of discovery.
In the normal course of agricultural operations, the Company
handles, stores, transports and dispenses products identified as
hazardous materials. The Company has had regulatory
agencies conduct inspections and there has been a claim
asserted relating to these materials. Although the Company
does not believe remedial action, if any, will require the
expenditure of funds material to the Company's financial
condition, no assurance can be given regarding the outcome of
environmental claims, investigations or remedial actions in the
future.
The Company is involved in other legal and administrative
proceedings and claims. In the opinion of management, the
ultimate outcome of each proceeding or all such proceedings
combined will not have a material adverse impact on the
Company's financial statements.
* * * * * *
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of Sun World International, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations and accumulated deficit and of cash
flows present fairly, in all material respects, the financial position of Sun
World International, Inc. and its subsidiaries (the Company) at September
13, 1996, and the results of their operations and their cash flows for the
period January 1, 1996 through September 13, 1996 in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audit. We
conducted our audit of these statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for the opinion
expressed above.
As discussed in Note 1, the Company and certain of its subsidiaries filed
voluntary petitions for relief under Chapter 11 of the Bankruptcy Code on
October 3, 1994. On July 12, 1996, the Bankruptcy Court confirmed the
Plan of Reorganization (the Plan) which became effective on September 13,
1996. Concurrent with the approval of the Plan, the Company was acquired
by Cadiz Land Company, Inc. The accompanying consolidated financial
statements do not include any adjustments for the forgiveness of
indebtedness or for the adjustment of assets and other liabilities which will
result from the Plan nor do they give effect to any adjustments which may
be necessary as a consequence of the acquisition.
/s/ Price Waterhouse LLP
-----------------------
Price Waterhouse LLP
Los Angeles, California
November 22, 1996
<TABLE>
SUN WORLD INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
<CAPTION>
September 13,
1996
ASSETS ------------------
<S> <C>
Current assets:
Cash $ 17,113
Accounts receivable, net 18,347
Inventories 12,991
Assets held for sale 15,074
Prepaid expenses and other 1,241
--------------
Total current assets 64,766
Investment in partnerships 1,752
Property, plant and equipment, net 80,723
Other assets 5,425
---------------
$ 152,666
=========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 11,710
Accrued liabilities 1,878
Long term debt due within one year 1,269
---------------
Total current liabilities 14,857
Long term debt 1,484
Deferred revenue and other 59
Liabilities subject to compromise
under reorganization proceedings 180,249
Deferred income taxes 7,500
Commitments and contingencies
Stockholders' deficit:
Convertible 10% preferred stock,
75,000 shares authorized;
38,501 shares issued and
outstanding (liquidation
preference $11,550,000) 11,550
Common stock, $1 par value,
300,000 shares authorized;
42,000 shares issued and outstanding 42
Additional paid in capital 29,350
Accumulated deficit (92,425)
---------
Total stockholders' deficit (51,483)
---------
$ 152,666
=========
<FN>
See accompanying notes to the consolidated financial statements.
</FN>
</TABLE>
<TABLE>
SUN WORLD INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF OPERATIONS AND ACCUMULATED
DEFICIT
(Dollars in thousands)
<CAPTION> January 1 to
September 13,
1996
--------------
<S> <C>
Revenues $77,938
---------
Costs and expenses:
Cost of sales 60,300
General and administrative 5,934
---------
66,234
--------
Operating income 11,704
Other income (242)
Interest expense 10,806
------------
Net income before reorganization items 1,140
------------
Reorganization items:
Professional fees 4,085
Adequate protection fees 3,007
Interest income (500)
------------
Total reorganization items 6,592
------------
Net loss (5,452)
Accumulated deficit beginning of year (86,973)
-------------
Accumulated deficit at September 13, 1996 $(92,425)
========
<FN>
See accompanying notes to the consolidated financial statements.
</FN>
</TABLE>
<TABLE>
SUN WORLD INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
<CAPTION> January 1 to
September 13,
1996
---------------------
<S> <C>
Cash flows from operating activities:
Net loss $ (5,452)
Adjustments to reconcile
net loss to cash used in
operating activities:
Depreciation and amortization 4,085
Gain on sale of property,
plant and equipment (10)
Share of partnership operations (628)
Changes in operating assets
and liabilities:
Increase in accounts receivable,
net (4,468)
Increase in inventories (340)
Decrease in prepaid expenses
and other 112
Decrease in accounts payable (2,216)
Decrease in accrued liabilities (196)
Decrease in deferred revenue
and other (20)
-------------
(9,133)
-------------
Increase in liabilities subject to
compromise under
reorganized proceedings 2,794
------------
Net cash used in
operating activities (6,339)
-------------
Cash flows from investing activities:
Additions to property,
plant and equipment (2,321)
Additions to developing crops (462)
Partnership distributions 825
Increase in other assets (1,146)
Proceeds from disposal of
property, plant & equipment 2,991
------------
Net cash used in investing
activities (113)
-------------
Cash flows from financing activities:
Increase in long term debt 1,050
Payments of long term debt (818)
Proceeds from short term borrowings 46,711
Payments on short term borrowings (46,711)
------------
Net cash provided by
financing activities 232
------------
Net decrease in cash (6,220)
-------------
Cash at beginning of year 23,333
------------
Cash at September 13, 1996 $17,113
========
<FN>
See accompanying notes to the consolidated financial statements.
</FN>
</TABLE>
SUN WORLD INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
1. NATURE OF OPERATIONS AND REORGANIZATION UNDER CHAPTER 11
Sun World International, Inc. ("SWII") and its subsidiaries
(collectively the "Company") own and farm approximately 21,000
acres in two major growing areas of California, the Southern San
Joaquin Valley and Coachella Valley. Fresh produce, including
table grapes, tree fruit, peppers and watermelon are marketed,
packed and shipped to food wholesalers and retailers located
throughout the United States and in certain foreign countries. Export
sales accounted for approximately 7.5% of the Company's sales for
the period ended January 1, 1996 to September 13, 1996. As of
September 13, 1996, the Company owned and operated five cold
storage and/or packing facilities located in California.
On October 3, 1994, SWII and certain of its subsidiaries filed
voluntary petitions for relief under Chapter 11 of the Bankruptcy
Code. Since that date, the companies had been operating under
bankruptcy protection and had been negotiating with all parties to
the bankruptcy proceedings in an effort to develop a Plan of
Reorganization (the "Plan"). On July 12, 1996, the Bankruptcy
Court confirmed the Plan, which became effective on September 13,
1996 (the"Effective Date"). Pursuant to the Plan, SWII, Sun World,
Inc., Coachella Growers and Sun Desert, Inc. (all wholly owned
subsidiaries of SWII) emerged from the Chapter 11 Bankruptcy
proceedings and 100% of SWII's stock (both preferred and common)
was acquired by Cadiz Land Company, Inc. ("Cadiz"). The Plan
also provided for, among other things, the cancellation of certain
indebtedness in exchange for cash, elimination of all intercompany
debts, new indebtedness, issuance of new equity securities, the
discharge of other prepetition claims, the cancellation of all
prepetition ownership interests in the Company, the settlement of
certain claims and mutual releases of certain claims of the Company
and other persons or entities (including certain affiliated persons or
entities), the assumption or rejection of executory contracts and
unexpired leases to which the Company was a party, and the
establishment of procedures for the selection of a Board of Directors
for the Company. The Plan did not provide for the reorganization of
the estate or the resolution of outstanding third party claims and
equity interests for AAI Services, Inc., a wholly owned subsidiary of
SWII.
Cadiz acquired all of the capital stock of the Company for total
consideration of approximately $179 million including
approximately $150 million which will be owed to the Company's
existing secured lenders through issuance of new notes. In addition,
Cadiz made a cash capital contribution of $15 million to the
Company to provide additional operating capital.
The following table summarizes the recoveries to the prepetition
creditors and equity holders pursuant to the Plan based upon the
Company's estimate of total claims to be allowed as of September
13, 1996 (dollars in thousands) (unaudited):
Recovery
-----------------------------------------------------------------
Estimated Cadiz
Allowed Claims Long term Common Total
Claims/Interest Amount (1) Cash Debt Stock Recovery
- ----------------------------------------------------------------------------
Administrative,
Tax and Priority $ 5,000 $ 5,000 $ 0 $ 0 $ 5,000
Credit Agricole
Secured Debt 58,621 3,500 55,121 0 58,621
John Hancock
Secured Debt 93,084 2,000 91,084 0 93,084
Zenith Secured
Debt 3,065 250 2,575 240 3,065
Other Secured
Debt 1,050 0 1,050 0 1,050
General Unsecured
Claims 20,800 12,500 0 0 12,500
Convertible
Preferred Stock
and Common Stock 11,592 3,000 0 2,487 5,487
-------- -------- --------- ---------- --------
$193,212 $ 26,250 $ 149,830 $ 2,727 $178,807
======== ======= ======== ======== ========
(1) Excludes any recovery to the Internal Revenue Service for claims as further
discussed by Note 14.
Management believes that the aggregate fair value of the Company's
long term debt issued pursuant to the Plan approximates the
aggregate book value.
The Plan provided for a consolidation of the assets and liabilities of
SWII and its subsidiaries and pursuant to the Plan, SWII was merged
into Sun World, Inc. with the surviving corporation retaining the
name of Sun World International, Inc. All payments and
distributions required by the Plan to be made by SWII or any of its
subsidiaries in respect of prepetition claims have been made or
provided for, and SWII and its subsidiaries expect to have no further
obligation with respect to any prepetition claims.
Cadiz intends to account for this acquisition using the purchase
method which will materially change the amounts reported in the
accompanying consolidated balance sheet as of September 13, 1996.
The consolidated financial statements do not give effect to
adjustments of assets or liabilities, or classifications of such
amounts, which may be necessary as a consequence of the Cadiz
acquisition.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING The consolidated financial statements
include the accounts of SWII and its subsidiaries, substantially all of
which are wholly owned. All significant intercompany transactions
have been eliminated.
The Company has accounted for all transactions related to the
Chapter 11 proceedings in accordance with Statement of Position 90-7,
"Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code," issued by the American Institute of Certified
Public Accountants. Accordingly, liabilities subject to compromise
under reorganization proceedings have been segregated on the
consolidated balance sheet and are recorded at the amounts that have
been or are expected to be allowed based upon known claims. The
accompanying financial statements do not include any adjustments
for the forgiveness of indebtedness or for the adjustment of assets or
other liabilities which will result from the Plan.
INVENTORIES Growing crops, pepper seed, and materials and
supplies are stated at the lower of cost, on a first in, first out (FIFO)
basis, or net realizable value. Growing crops inventory includes
direct costs and an allocation of indirect costs.
INVESTMENT IN PARTNERSHIPS Wholly owned subsidiaries
of the Company have investments in various partnerships. The
Company's two principal partnerships are Sun Date and American
Sunmelon, both of which are 50% owned. American Sunmelon is
engaged in proprietary seed development, production, and marketing
of seedless watermelons. Sun Date is engaged in the marketing,
processing, and farming of dates. These partnership investments are
accounted for using the equity method.
PROPERTY, PLANT AND EQUIPMENT Property, plant and
equipment is stated at cost for all acquisitions subsequent to
September 30, 1983. All property, plant and equipment acquired
prior to September 30, 1983 was restated to estimated fair value at
that date in connection with the Company's quasi-reorganization.
The Company capitalizes the direct and certain indirect costs of
planting and developing orchards and vineyards until they reach
maturity, which varies by crop and ranges from three to seven years.
Depreciation on trees and vines commences in the year commercial
production is achieved.
The Company computes depreciation applicable to property, plant
and equipment on the straight line method using the following
estimated useful lives:
Buildings and improvements 10-45 years
Machinery and equipment 3-25 years
Permanent crops 10-20 years
Upon the sale, retirement or abandonment of property, plant and
equipment, applicable gains or losses are recognized in income.
ASSETS HELD FOR SALE In conjunction with the Company's
1996 Business Plan, specific properties were identified to be sold.
These properties, which are included in the accompanying
consolidated balance sheet at the lower of cost or fair value less
estimated costs to sell, consist of both farmland and facilities that
were determined not vital to the Company's on going operations. It
is expected that the assets will be sold within twelve months from
the balance sheet date.
OTHER ASSETS Other assets include professional fees and other
costs to establish and defend trademark and patent rights. These
assets are amortized over a 10 year period on a straight line basis.
Also included in other assets are water rights that were obtained in
connection with a 1988 divestiture of the Company's interest in a
partnership. The Company is amortizing these water rights over 97
years using the straight line method.
REVENUE RECOGNITION The Company recognizes crop sale
revenue after harvest and delivery to customers. Packing revenues
are recognized as units are packed. Marketing commission revenues
are recognized at the time of product shipment.
REORGANIZATION ITEMS The net expenses incurred as a
result of the Chapter 11 filing and subsequent reorganization
proceedings have been segregated from recurring operations in the
consolidated statement of operations.
INCOME TAXES Income taxes are accounted for using an asset
and liability approach which requires the recognition of deferred tax
assets and liabilities for the expected future tax consequences of
temporary differences between the financial statement and tax bases
of assets and liabilities at the applicable enacted tax rates.
SUPPLEMENTAL CASH FLOW INFORMATION Cash
payments for interest were $9,308,000 for the period ended January
1, 1996 to September 13, 1996. In 1996 the Company paid income
tax, net of refunds, of $11,000.
RESEARCH AND DEVELOPMENT The Company incurs costs
to research and develop new varieties of proprietary products.
Research and development costs are expensed as incurred. Such
costs were approximately $296,000 for the period ended January 1,
1996 to September 13, 1996.
USE OF ESTIMATES IN PREPARATION OF FINANCIAL
STATEMENTS The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
amounts reported in the financial statements and related notes.
Actual results could differ from these estimates.
RECENTLY ISSUED ACCOUNTING STANDARDS In March
1995, Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long Lived Assets and for Long
Lived Assets to be Disposed of ("SFAS 121") was issued. SFAS
No. 121 establishes new guidelines in accounting for the impairment
of long lived assets, including identifiable intangibles. When
circumstances indicate that the carrying amount of an asset may not
be recoverable as demonstrated by estimated future cash inflows, an
impairment loss shall be recorded based on fair value. The adoption
of SFAS No. 121 in 1996 resulted in no adjustments to the financial
statements.
3. ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following (dollars in
thousands):
September 13
1996
----------------
Trade receivables $14,178
Due from unaffiliated growers 709
Other 3,642
-------
18,529
Less allowance for doubtful
accounts 182
-----------
$18,347
=========
Substantially all domestic trade receivables are from large
national and regional supermarket chain stores and produce
brokers and are unsecured. The amounts due from growers
represent receivables for services (harvest, haul and pack)
provided on behalf of growers under agreement with the
Company and are recovered from proceeds of product sales.
Other receivables primarily include lemon crop sales, by product
sales, and amounts receivable from joint venture partners.
4. INVENTORIES
Inventories consisted of the following (dollars in thousands):
September 13,
1996
------------
Growing crops $ 6,732
Harvested product 1,912
Pepper seed 2,206
Materials and supplies 2,141
-----------
$12,991
=========
Pepper seed is net of a valuation allowance of $395,000 at
September 13, 1996, to reduce such inventories to their net
realizable value.
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following
(dollars in thousands):
September 13,
1996
------------------
Land $ 27,446
Permanent crops 43,764
Buildings and improvements 27,236
Machinery and equipment 20,250
-------------
118,696
Less accumulated depreciation 37,973
-------------
$ 80,723
============
6. INCOME TAXES
Significant components of the Company's deferred income tax
assets and liabilities as of September 13, 1996, are as follows
(dollars in thousands):
Deferred tax liabilities:
Net fixed asset basis difference $23,078
State taxes 181
--------
Total deferred tax liabilities 23,259
Deferred tax assets:
Net operating losses 29,779
Tax credit carryforwards 1,549
Reserve for notes receivable 5,769
Capitalized legal fees 4,447
Basis difference in water rights 1,198
Allowance for doubtful accounts 79
Basis difference in partnership investments 290
Revolving funds reserve 114
State taxes 353
-------
Total deferred tax assets 43,578
Valuation allowance for deferred tax assets (27,819)
Total deferred tax assets, net 15,759
-----------
Net deferred tax liability $ 7,500
=======
The Company has provided a valuation allowance for the tax
benefits of deferred tax assets which may not be realizable.
Income tax expense (benefit) varies from the amount
computed by applying the statutory federal income tax rate to
the income (loss) before income taxes. The reasons for this
difference are as follows:
September 13,
1996
---------------
Statutory federal rate (34.0%)
State taxes, less federal benefit (6.2%)
Valuation allowance 40.2%
-----------
Effective rate 0.0%
========
At September 13, 1996, the Company had net operating loss
carryforwards for federal and state income tax purposes of
approximately $40,439,000 and $8,032,000, respectively,
which expire at various dates from 1997 through 2011. In
addition, a wholly owned subsidiary acquired in 1989 has net
operating loss carryforwards of approximately $44,950,000 for
federal tax purposes, which are subject to an annual limitation
for a fifteen year period. The federal loss carryforwards expire
at various dates from 2001 through 2004.
The Company had investment and research and experimental
tax credit carryforwards of approximately $692,000 which
expire from 1997 to 2007. The Company also had alternative
minimum tax carryforwards of approximately $857,000.
The utilization of the net operating loss and credit
carryforwards could be limited or eliminated by a reduction in
liabilities as a result of the Plan and/or by changes in the
Company's stock ownership resulting from the Cadiz
acquisition.
7. FINANCING
Pursuant to the Plan, the Company issued new debt (along
with Cadiz common stock) to settle prepetition long term debt.
The following is a discussion of the Company's financing
arrangements prior to and as of the Effective Date.
Prepetition Financing:
Debt and other financing arrangements of the Company at
September 13, 1996 were as follows, based on the original
contractual maturities:
September 13,
1996
--------------
(in thousands)
Secured Debt:
Revolving credit facility $ 34,277
Note payable to an insurance
company, monthly installments
of $824,000 (includes
interest), due on November
1, 2000, interest
at 10.6% (default interest
at 12.6%) 77,234
Note payable to bank, semi
annual installments
of $750,000, due November
30, 1999, interest
at prime plus 1.25%
(9.75% at December 31,
1995), payable quarterly
(default interest at
prime plus 3.25%) 5,793
Note payable to bank,
annual installments of
$1,500,000 due November 30,
1996, interest
at prime plus 1.25%
(9.75% at December 31,
1995), payable quarterly
(default interest at prime
plus 3.25%) 10,500
Note payable to insurance
company, monthly
installments of $60,000
(includes interest), interest
at 12.9% 2,838
Unsecured Debt:
Note payable to bank,
due July 1, 1995, interest
only at 10.0%, payable
quarterly 1,500
Note payable to partnership,
due September 1, 1994,
interest at 13.25% 1,150
--------
$ 133,292
==========
All of this prepetition debt has been classified in the
accompanying consolidated balance sheet as "Liabilities subject
to compromise under reorganization proceedings." As a result
of the bankruptcy, all required principal payments on prepetition
debt were suspended. For the period subsequent to the Petition
Date, interest on the unsecured prepetition debt was not paid or
accrued. Interest on secured prepetition debt continued to be
accrued in the period subsequent to the Petition Date at the
default interest rates. Pursuant to Bankruptcy Court order,
adequate protection payments (including $3,417,000 in asset sale
proceeds) were made on the secured debt amounting to
$11,650,000 for the period from January 1, 1996 to September
13, 1996. "Liabilities subject to compromise under
reorganization proceedings" included $18,486,000 related to
unpaid interest accrued on secured debt and $5,642,000 of
unpaid professional fees incurred by the secured lenders as of
September 13, 1996. Pursuant to the Plan, this accrued but
unpaid interest and unpaid professional fees have been included
as part of the principal balance of the respective new financing
agreements.
These credit facilities described above were collateralized by
substantially all of the assets of the Company. The Company
was in default on substantially all of the covenants under these
credit facilities as of September 13, 1996.
Debtor In Possession Financing:
The Bankruptcy Court entered an order on January 20, 1995
approving a debtor in possession (DIP) financing agreement for
the Company in an aggregate amount of $30,000,000. The DIP
facility was amended and restated as of February 28, 1996 to
extend the facility through the 1996 operating season in an
aggregate amount of $20,000,000. The DIP financing granted to
the DIP lender security interests in all the real and personal
property of the Company including all contract accounts,
contract rights, fixtures, copyrights, patents and trademarks.
Under the terms of the loan and the Bankruptcy Code, the
security interest of the DIP lender had priority over virtually all
prepetition claims and Chapter 11 administrative expense claims.
The DIP financing also contained a clause to provide adequate
protection to certain prepetition secured lenders in the form of (a)
replacement liens and (b) payment of specified amounts on the
prepetition secured debt to cover interest and professional fees
incurred by the lenders.
Interest on the DIP borrowings was prime plus 1.25%. During
1996, the Company borrowed and repaid up to $6,790,000 under
this facility and had no balance outstanding at September 13,
1996. Total interest and fees paid during 1996 related to the DIP
facility was $106,000.
The DIP facility expired when the Company emerged from
bankruptcy on September 13, 1996.
Postpetition Financing:
On or about October 27, 1995, the Bankruptcy Court issued the
Weyerhaeuser Order pursuant to which the Company assumed
certain agreements with Weyerhaeuser for corrugated shipping
containers and related financing. Pursuant to the Weyerhaeuser
Order, the Company was required to make certain adequate
protection payments and entered into a secured note. In addition,
during 1996, the Company, with Bankruptcy Court approval,
agreed to purchase certain equipment which had been under lease
and entered in a secured note. The outstanding balances at
September 13, 1996 for these notes were as follows:
(in thousands)
Note payable to supplier,
monthly installments of $ 1,728
$104,000 (includes interest),
due March 1, 1998,
interest at 10.00%.
Note payable to financing company,
monthly installments
of $18,155 (includes interest),
due July 1, 2002,
interest at 7.50% 1,025
----------
2,753
Less: current portion 1,269
-----------
$ 1,484
==========
Plan Financing:
Pursuant to the Plan, the Company entered into new financing
agreements totaling approximately $150 million with its
existing secured lenders which are collateralized by
substantially all of the assets of the Company. These
financing agreements require, among other terms, minimum
amounts, as defined, of working capital and tangible net worth
and minimum ratios of current assets to current liabilities and
indebtedness to net worth. Annual maturities of the debt
outstanding upon emergence from bankruptcy on September
13, 1996 is as follows: remainder of 1996-$3,705,000; 1997-$8,789,000;
1998-$7,970,000; 1999-$9,369,000; 2000-$11,377,000; 2001 and thereafter
- $110,322,000.
8. PREFERRED STOCK
In May 1985, the Board of Directors of the Company
designated 40,000 shares of Preferred Stock as Series I
Preferred Stock. Each share of Series I Preferred Stock was
convertible into one share of Common Stock and was entitled
to receive cash dividends of $30 per share for each of the fiscal
years ending on or after September 30, 1987. Such dividends
were cumulative under certain circumstances and included
other rights such as a liquidation preference per share equal to
the sum of $300, plus all accrued but unpaid dividends.
Pursuant to the Plan, all prepetition ownership interests of the
Company, including the Series I Preferred Stock, as of the
Effective Date were sold to Cadiz. At that time, accumulated
undeclared dividends on the preferred stock of $10,395,000 at
September 13, 1996 were released.
9. LEASING ARRANGEMENTS
The Company leases certain parcels of land, facilities,
machinery, and equipment under non cancelable operating
leases which expire in various years through 2000.
At September 13, 1996, future minimum lease commitments
under noncancellable leases (exclusive of property taxes and
insurance) consist of the following for each fiscal year ended
December 31 (dollars in thousands):
Facilities &
Land Equipment Total
------ ---------- -------
1996 $ 61 $ 344 $ 405
1997 117 351 468
1998 102 51 153
1999 3 0 3
2000 3 0 3
--------- --------- --------
$ 286 $ 746 $ 1,032
======= ======= =======
Total operating lease rental expense for the period ended
January 1, 1996 to September 13, 1996 was $862,000.
10. LIABILITIES SUBJECT TO COMPROMISE UNDER REORGANIZATION PROCEEDINGS
Liabilities subject to compromise under reorganization
proceedings consisted of the following as of September 13,
1996 (dollars in thousands):
Accounts payable $ 24,348
Interest payable 18,486
Other accrued liabilities 4,123
Long term debt (see Note 7) 133,292
-------------
$ 180,249
========
11. COMMITMENTS
DEBT GUARANTEE The Company was co guarantor with
its partner on a bank loan to the Sun Date partnership (see
Note 13). The loan totaled $1,150,000 at September 13, 1996.
In connection with the Sun Date settlement during the
bankruptcy proceeding, the Company will be released from
this bank guarantee and Cadiz has agreed to guarantee the
bank loan up to a maximum of $350,000.
PURCHASE AGREEMENT In 1995, the Company entered
into an agreement with its major corrugated container supplier
in connection with a prepetition liability settlement. The
settlement stipulated that the original agreement to purchase
containers from the supplier would remain in effect until
March 21, 1998 and required the Company to issue a secured
note payable to the supplier (see Note 7). Thereafter, the
original agreement will automatically renew unless either
party gives written notice ninety days prior to the end of the
renewal period.
12. RETIREMENT PLANS
The Company established on January 1, 1996 a 401(k) Plan
for salaried employees. Employees must work 1,000 hours
and have completed one year service to be eligible to
participate in this plan. The Company contributed $105,000 to
the plan for the period from January 1, 1996 to September 13,
1996.
The Company has a defined contribution pension plan
covering substantially all of its employees not covered by a
collective bargaining agreement, with at least one year of
service and who have worked at least 1,000 hours.
Contributions are 2% of each covered employee's salary.
There were no contributions made for the period from January
1, 1996 to September 13, 1996. For those hourly employees
covered under a collective bargaining agreement, contributions
are made to a multiemployer pension plan in accordance with
negotiated labor contracts and are generally based on the
number of hours worked. There were no contributions made
to these plans for the period from January 1, 1996 to
September 13, 1996.
13. RELATED PARTY TRANSACTIONS
AG ACCOUNTING, INC. The Company has entered into
agreements to market products obtained from growers in
which a former major stockholder/director of the Company
has financial interests and/or farm management contracts. Ag
Accounting, Inc. ("Ag Accounting"), which is wholly owned
by this former stockholder/director, provides accounting
services to these affiliated growers. The Company recognized
marketing commission revenues from these affiliated growers
of $151,000 for the period January 1, 1996 to September 13,
1996. The Company makes crop advances and charges for
some or all of harvesting, hauling, packing and marketing
services provided to these growers. These charges are
deducted from crop proceeds paid to growers. Amounts due
the Company from Ag Accounting totalled $84,000 as of
September 13, 1996. The Company bills the affiliated
growers monthly for services and remits net proceeds to each
grower for the crops marketed by the Company. In certain
instances, the Company has also obtained financing for these
affiliated growers. Costs related to a product incentive
program of $115,000 were incurred on behalf of Ag
Accounting for the period from January 1, 1996 to September
13, 1996.
ANTHONY VINEYARDS, INC. Anthony Vineyards, Inc. is
a farming entity owned by a former officer and director of the
Company. During 1996, the Company entered into marketing
agreements and provided packing and marketing services to
this grower. The Company makes grower advances for
harvesting, hauling, and packing materials which are
recovered from the grower at the time the Company receives
the crop proceeds. At September 13, 1996, the Company
owed Anthony Vineyards, Inc. $706,000 for net crop proceeds
received. The Company recognized marketing commission
revenues from Anthony Vineyards of $717,000 for the period
from January 1, 1996 to September 13, 1996.
LSL BIOTECHNOLOGIES, INC. LSL Biotechnologies,
Inc. (LSL) is an entity that develops, produces and markets
seed varieties in which former officers and/or directors of the
Company have or had ownership interests. The Company and
LSL entered into growing agreements and seed purchase
contracts related to peppers and tomatoes. During the
bankruptcy proceeding, LSL made claims for prepetition and
postpetition amounts owed by the Company under the
agreements which the Company disputed. On September 9,
1996, an agreement between the Company and LSL was
reached that settled all LSL pre and postpetition claims against
the Company. The settlement included the allowance of a
prepetition unsecured claim in the amount of $900,000 and a
postpetition administrative claim of $650,000 for postpetition
royalties owed to LSL for pepper and tomato sales. The
prepetition allowed claim of $900,000 is included in
"Liabilities subject to compromise under reorganization
proceedings" in the accompanying balance sheet. The
postpetition allowed claim of $650,000 is included in accounts
payable in the accompanying balance sheet. In addition, the
Company agreed to convey the trade name and trademark Le
Rouge Royale to LSL and obtained a license to utilize the
trademark until December 31, 1997 for an additional royalty
of $100,000.
THE IRVINE COMPANY In prior years, the Company had
orchard and row crop farming, packing and marketing
agreements with The Irvine Company. A former major
stockholder/director of the Company owned stock in and was
a director of The Irvine Company, a large land owner and
developer in Southern California. In 1993, the orchard
agreement was terminated and in 1994 the row crop agreement
was terminated. As of September 13, 1996, the Company had
liabilities owed to The Irvine Company, primarily for land rent
and crop proceeds, of $5,000,000, which will be settled for
sixty percent of the total amount pursuant to the Plan.
AMERICAN SUNMELON For the period from January 1,
1996 through September 13, 1996, the Company made
payments to American Sunmelon of $461,000 primarily for
royalty payments and seed purchases. As of September 13,
1996, the Company had liabilities owed to American
Sunmelon of $188,000.
SUN DATE Prior to September 13, 1996, a former major
stockholder/director of the Company had ownership interests
in various date farming partnerships that provided unprocessed
dates to Sun Date. For the period January 1, 1996 through
September 13, 1996, the Company recognized marketing
commissions from date sales of $37,000. In addition, as of
September 13, 1996, the Company had liabilities payable to
Sun Date of $1,163,00, including a $1,150,000 prepetition
note payable which will be settled for sixty percent of the total
outstanding balance pursuant to the Plan.
14. CONTINGENCIES
The Internal Revenue Service (IRS) has filed claims against
the Company, and certain subsidiaries, for taxes refunded to
the Company for certain workers that the IRS claims were
employees. The Company contends that the workers are
excluded from the definition of employment under the Internal
Revenue Code. A complaint has been filed by the Company
in the Bankruptcy Court seeking refunds of taxes paid on
account of agricultural workers for other years. The Company
intends to object to the claims asserted by the IRS. The total
amount of claims filed against the Company are approximately
$4,300,000 including tax deficiency, interest and penalties. At
September 13, 1996, the Company has recorded a reserve for
these claims representing management's best estimate of the
ultimate amount that will be paid.
On January 3, 1996, the Company brought an action against
Corona College Heights Orange & Lemon Association (CCH)
alleging breach of contract, intentional interference with
economic advantage and unfair competition. On April 17,
1996, CCH counterclaimed against the Company, alleging
breach of contract, breach of fiduciary duty, negligence, fraud
and deceit, negligent misrepresentation, constructive fraud,
intentional interference with prospective economic advantage,
unjust enrichment and constructive trust and accounting. This
matter is in the early stages of discovery.
In the normal course of agricultural operations, the Company
handles, stores, transports and dispenses products identified as
hazardous materials. The Company has had regulatory
agencies conduct inspections and there has been a claim
asserted relating to these materials. Although the Company
does not believe remedial action, if any, will require the
expenditure of funds material to the Company's financial
position, no assurance can be given regarding the outcome of
environmental claims, investigations or remedial actions in the
future.
The Company is involved in other legal and administrative
proceedings and claims. In the opinion of management, the
ultimate outcome of each proceeding or all such proceedings
combined will not have a material adverse impact on the
Company's financial statements.
DESCRIPTION OF TRANSACTION
- --------------------------
On September 13, 1996, Cadiz Land Company, Inc. (the "Company")
acquired all of the stock of a reorganized Sun World International, Inc.
("Sun World") pursuant to a consensual plan of reorganization (Debtors'
Modified Fourth Amended Consolidated Plan of Reorganization dated June
3, 1996 (Modified) which was confirmed by the U.S. Bankruptcy Court at
a hearing on July 12, 1996 (the "Plan"). The acquisition is accounted
for by the purchase method of accounting. For a further explanation of
the transaction, see the Consolidated Financial Statements for the nine
months ended December 31, 1996, included herein.
The following unaudited pro forma statement of operations for the nine
months ended December 31, 1996 reflect combined results of operations as
if the acquisition had occurred at April 1, 1996.
Since prior to the current fiscal period, the fiscal year ends of the
Company and Sun World differed, for pro forma purposes, the Sun World
results of operations have been adjusted to conform to the Cadiz reporting
period. See footnotes (a) and (b) below. The pro forma adjustments include,
among others, decreased interest expense as a result of the refinancing of
Sun World's existing secured lenders and increased depreciation as a result
of the purchase price allocation. The pro forma adjustments do not reflect
the elimination of charges directly attributable to the Chapter 11 bankruptcy
proceedings which are not expected to recur subsequent to the emergence from
bankruptcy effective September 13, 1996. See footnote (f) for a more detailed
explanation of charges directly attritutable to Sun World's emergence
from bankruptcy.
The pro forma combined financial information should be read in conjunction
with the historical financial statements of Cadiz, including the notes
thereto, for the nine months ended December 31, 1996, which are included
elsewhere herein, as well as the historical financial statements of Sun
World for the period January 1, 1996 through September 13, 1996 which are
included elsewhere herein, from which the pro forma combined financial
statements of operations have been derived.
The following unaudited pro forma Combined Statement of Operations is
presented for informational purposes only and is not necessarily indicative
of the results of operations that would have occurred if the acquisition
had been consummated as of April 1, 1996, nor is it necessarily
indicative of the future operating results of the Company.
CADIZ LAND COMPANY, INC. &
SUN WORLD INTERNATIONAL, INC.
Pro Forma Combined Statement of Operations
For the nine months ended December 31, 1996
(In thousands except per share data)
(Unaudited)
Cadiz Land Sun World Pro Forma
Company, Inc. Intn'l Adjustments
(Audited) Inc. Increase Pro Forma
(a) (b) (Decrease) Combined
--------- ----------- ------------ ----------
Revenues $ 23,780 $ 74,230 $ -0- $ 98,010
-------- --------- ------------ ----------
Costs and expenses:
Cost of sales 17,725 52,596 (148)(c) 70,173
Resource development 1,133 -0- -0- 1,133
Landfill prevention
activities 394 -0- -0- 394
General and
administrative 4,924 3,358 (504)(c) 7,778
Depreciation and
amortization 1,039 4,082 947 (d) 6,068
------------- ------------ ------------ -------
Total costs and
expenses 25,215 60,036 295 85,546
Operating income (loss) (1,435) 14,194 (295) 12,464
Interest expense, net 5,203 7,323 (654)(e) 11,872
Reorganization items -0- 4,796 -0- 4,796
------------- ------------ ------------ -------
Net income (loss)
before taxes (6,638) 2,075 359 (4,204)
Income tax benefit (641) -0- -0- (641)
Net income (loss) (5,997) 2,075 359 (3,563)(h)
Less: Preferred stock
dividends (674) -0- (1,154)(f) (1,828)
Imputed dividend
on preferred
stock (2,451) -0- (272)(g) (2,723)
-------- -------- -------- --------
Net income (loss)
applicable to common
stock $ (9,122) $ 2,075 $ 1,067 $ (8,114)
========== ======= ======== ========
Net loss per common
share $ (.44) $ (.38)
========== =========
Weighted-average
shares outstanding 20,500 21,600
========= ========
See accompanying notes to the unaudited pro forma combined statement of
operations.
NOTES TO THE UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
- ------------------------------------------------------------------
The unaudited pro forma combined statement of operations has been adjusted
by the following to reflect the acquisition of Sun World by Cadiz as if it
were effective at April 1, 1996:
- -------------------
(a) Derived from the consolidated finanical statements of the Company
for the period April 1, 1996 to December 31, 1996, which statements
have been audited by Price Waterhouse LLP, independent accountants,
as indicated in their report included elsewhere herein and which
include, on a consolidated basis, the results of operations for
Cadiz for the period April 1, 1996 to December 31, 1996 and those
of Sun World for the period September 14, 1996 (the date subsequent
to the Sun World acquisition) to December 31, 1996.
(b) The activity for Sun World (pre-acquisition) for the period April 1,
1996 through September 13, 1996 was derived by subtracting the
activity of Sun World for the period January 1, 1996 through March 31,
1996, which period was unaudited, from the consolidated financial
statements of Sun World for the period January 1, 1996 through
September 13, 1996 (the date of the Sun World acquisition), which
statements have been audited by Price Waterhouse LLP, independent
accountants, as indicated in their report included elsewhere herein.
(c) Represents reductions of costs and expenses resulting from a number
of initiatives including elimination of overstaffing and redundant
staffing throughout Sun World and reduction of labor and rent made
possible by the closing of the Sun World administrative headquarters
and consolidating these operations into the Kimberlina packing
facility. Liabilities related to these employee terminations and
the relocation have been accrued in connection with the Sun World
Acquisition pursuant to the Financial Accounting Standards Board
Emerging Issues Task Force Consensus No. 95-3, "Recognition of
Liabilities in Connection with a Business Combination."
(d) Reflects incremental depreciation expense resulting from an increased
basis of property, plant and equipment pursuant to the purchase method
of accounting. The total basis of property, plant and equipment was
increased by approximately $33 million which will be depreciated over
a period of 10 to 45 years for land improvements and buildings and
3 to 25 years for machinery and equipment.
(e) Concurrent with the acquisition of Sun World by the Company, Sun
World entered into new financing arrangements with its primary
secured lenders which provided for, among other things, reduced
interest rates. Additionally, the Company paid $5.5 million toward
the Sun World outstanding debt obligations. Interest expense based
on the pro forma capitalization of the Company is summarized in the
table below ($ in thousands):
John Hancock Credit Agreement (1).......................$ 7,152
Credit Agricole Credit Agreement (2).................... 3,737
Other secured debt (3).................................. 365
---------
Total interest expense.................................. 11,254
Less historical interest on debt ....................... (11,908)
---------
Decrease in interest expense............................$ (654)
========
-------------------
(1) Based upon a fixed interest rate of 10.60%
(2) Assumes an interst rate of 9.0%. A change of
0.125% in the interst rate would change interest
expense by $58,394 for the nine months ended
December 31, 1996.
(3) Based upon fixed interest rates ranging from
7.50 to 10.00%.
(f) Represents 6% preferred stock dividends for the nine month
period.
(g) Assumes issuances of Series B and Series C Preferred Stock
at April 1, 1996.
(h) Includes for the nine months ended December 31, 1996, charges
incurred by Sun World totaling $4.8 million which were
directly attributable to the Chapter 11 bankruptcy proceedings
and are non-recurring in nature. Exclusion of the non-recurring
charges would have resulted in pro forma net loss per share of
$.15 for the nine months ended December 31, 1996.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
- ------------------------------------------------------
The Company estimates that expenses in connection with the
distribution described in this Registration Statement will be as
shown below. All expenses incurred with respect to the
distribution will be paid by the Company. See "Plan of
Distribution."
SEC registration fee . . . . . . . . . . . . . . . . . $ 12,512
Printing expenses. . . . . . . . . . . . . . . . . . . 4,000
Accounting fees and expenses . . . . . . . . . . . . . 20,000
Legal fees and expenses. . . . . . . . . . . . . . . . 50,000
Miscellaneous. . . . . . . . . . . . . . . . . . . . . 5,000
Total. . . . . . . . . . . . . . . . . . . . . $ 91,512
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
- -----------------------------------------------------
Section 145 of the Delaware General Corporation Law permits
the Registrant's Board of Directors to indemnify any person against
expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by him in
connection with any threatened, pending or completed action, suit
or proceeding in which such person is made a party by reason of his
being or having been a director, officer, employee or agent of the
Registrant, in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities
(including reimbursement for expenses incurred) arising under the
Securities Act of 1933, as amended (the "Act"). The statute
provides that indemnification pursuant to its provisions is not
exclusive of other rights of indemnification to which a person may
be entitled under any bylaw, agreement, vote of stockholders or
disinterested directors, or otherwise.
The Registrant's Bylaws (Exhibit 3.2 hereto) provide for
mandatory indemnification of directors and officers of the Company,
and those serving at the request of the Company as directors,
officers, employees, or agents of other entities (collectively,
"Agents"), to the maximum extent permitted by law. The Bylaws
provide that such indemnification shall be a contract right between
each Agent and the Company.
In 1990, the Company entered into an Indemnity Agreement with
each of the individuals then serving as an executive officer or
director of the Company, including Keith Brackpool, the current
Chief Executive Officer of the Company. The Indemnity Agreement as
to Mr. Brackpool remains in effect; all of the other executive
officers and directors who executed an Indemnity Agreement with the
Company have since resigned from their positions with the Company.
The Indemnity Agreement provides for the indemnification of the
indemnified party with respect to his activities as a director or
officer of the Company or an affiliate of the Company against
expenses and liabilities, of whatever nature, incurred in
connection with any claim made against him by reason of facts which
include his affiliation with the Company. Such indemnification is
provided to the maximum extent permitted by the Company's charter
documents, insurance policies and/or any applicable law.
The Subscription Agreements between the Company and the
purchasers (the "Purchasers") of certain of the securities
registered hereunder provide that the Company shall indemnify the
Purchasers under certain circumstances and the Purchasers shall
indemnify the Company and controlling persons of the Company under
certain circumstances, including indemnification for liabilities
arising under the Act. The Warrants registered hereunder also
include similar indemnification provisions.
The Company's Certificate of Incorporation provides that a
director of the Company shall not be personally liable to the
Company or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to the Corporation or its
stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii)
under Section 174 of the Delaware General Corporation Law, or (iv)
for any transaction from which the director derived an improper
personal benefit. The Company also has purchased a liability
insurance policy which insures its directors and officers against
certain liabilities, including liabilities under the Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
- --------------------------------------------------
The Company believes that the sales of securities in the
transactions described below were all either exempt from, or not
subject to, the registration requirements of the Act:
Date Title Amount Consideration Purchaser(s)
- ----- -------------- --------- ------------- ---------------------
04/94 Options to 200,000 Long-term Employee
purchase options(1) employment
Common Stock agreement
05/94 Options to 1,430,500 Services Directors, officers
purchase options(1) and employees
Common Stock
02/95 Options to 120,000 Services Employees and
purchase options(1) consultant
Common Stock
03/95 Warrants to 35,000 Extension Rabobank
purchase warrants(1) of credit
Common Stock
03/95 Common Stock 110,000 Extension Ansbacher
shares(2) of credit
03/95 - Common Stock 100,000 Settlement Private investor
04/95 shares(1) of dispute
04/95 Options to 50,000 Services Employee
purchase options(1)
Common Stock
05/95 Options to 50,000 Services Employee
purchase options(1)
Common Stock
07/95 Common Stock 450,000 $1,800,000 Private investors
shares(2)
09/95 Options to 50,000 Services Employee
purchase options(1)
Common Stock
10/95 Common Stock 49,157 Sale of Private investor
& 6/96 shares(2) interest in group
real property
10/95 Common Stock 500,000 $2,050,000 Private investors
shares(2)
12/95 Common Stock 225,000 $1,035,000 Private investors
shares(2)
01/96 Options to 57,500 Services Employee
purchase options(1)
Common Stock
03/96 Common Stock 900,000 $5,175,000 Private investors
shares(2)
07/96 Preferred 760 $7,600,000 Private investors
Stock - shares(2)
Series B
09/96 Options to 1,850,000 Services Directors, officers
purchase options(1) employees and
Common Stock consultants
09/96 Preferred 27,631 $27,631,000 Private investors
Stock - shares(1)
Series A
09/96 Preferred 260 $2,600,000 Private investors
Stock - shares(2)
Series C
09/96 Warrants to 30,000 Modification Rabobank
purchase warrants(1) of credit
Common Stock terms
11/96 Preferred 240 $2,400,000 Private investors
Stock - shares(2)
Series B
11/96 Preferred 40 $400,000 Private investors
Stock - shares(2)
Series C
12/96 Common Stock 63,000 Settlement Two former creditors
shares(1) of claims of Sun World
12/96 Common Stock 10,000 $25,000 - Private investor
shares(1) Exercise of
options
1/97 Options to 50,000 Consulting Consultant
purchase options(1) services
Common Stock
1/97 Common Stock 100,000 $425,000 - Former employees
shares(1) Exercise of
options
3/97 Options to 275,000 Services Employees
purchase options(1)
Common Stock
3/97 Common Stock 28,000 $65,000 - Employee
shares(1) Exercise of
options
3/97 Common Stock 30,000 Transfer of Ansbacher
shares(2) loan
("Ansbacher
Loan")
3/97 Warrants to 75,000 Assumption ING Baring (U.S.)
purchase warrants(1) of Ansbacher Capital Corporation
Common Stock Loan
4/97 Common Stock 125,000 Services - Chief Executive Officer
shares(1) Restricted
stock award
_________________________
(1) The Company believes that the transactions in which these
securities were sold were exempt from registration under the
Act by virtue of Section 4(2) thereof as transactions not
involving any public offerings. In each transaction, the number
of investors was limited, the investors
confirmed to the Company their investment intent, the investors
were provided with information about the Company and/or access to
such information, and restrictions were placed on resales of the
securities.
(2) The Company believes that the transactions in which these
securities were sold were not subject to the registration
requirements of the Act by virtue of Rules 901 and 903 of
Regulation S promulgated under the Act. In each transaction, the
offers and sales were made in offshore transactions, without
any directed selling efforts, to investors which certified
that they were not U.S. persons.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
- -----------------------------------------------------
(a) EXHIBITS
--------
The following exhibits are filed or incorporated by
reference as part of this Registration Statement.
2.1 Debtors' Modified Fourth Amended Consolidated Plan of
Reorganization dated June 3, 1996 (as modified)(1)
2.2 Plan Implementation Agreement dated July 12, 1996(1)
2.3 Supplement to Plan Support Agreement dated June 3,
1996(1)
2.4 Stock Purchase Agreement with Howard Marguleas dated
September 13, 1996(2)
2.5 Form of Stock Purchase Agreement with Minority
Stockholders of Sun World dated September 13, 1996(2)
3.1 Certificate of Incorporation of the Company, as
amended(3)
3.2 Amendment to Certificate of Incorporation dated
November 8, 1996(4)
3.3 Bylaws of the Company, as amended to date(5)
4.1 Specimen Form of Stock Certificate for the Company's
registered stock(5)
4.2 Certificate of Designations of 6% Convertible Series A
Preferred Stock(2)
4.3 Certificate of Designations of 6% Convertible Series B
Preferred Stock(6)
4.4 Certificate of Designations of 6% Convertible Series C
Preferred Stock(2)
4.5 Indenture dated as of April 16, 1997 among Sun World as
issuer, the Company and certain subsidiaries of Sun
World as guarantors, and IBJ Schroder Bank & Trust
Company as Trustee, for the benefit of holders of
11-1/4% First Mortgage Notes due 2004.
5.1 Opinion of Miller & Holguin as to certain corporate law
matters
10.1 1984 Incentive Stock Option Plan(7)
10.2 1988 Nonstatutory Stock Option Plan(8)
10.3 1996 Stock Option Plan(13)
10.4 Stock Purchase and Fee Agreement dated March 22, 1989
between the Company and Mark A. Liggett(7)
10.5 Form of Limited Partnership Agreement of Southwest
Fruit Growers, L.P.(9)
10.6 Farm Management Agreement dated as of March 28, 1990
between the Company and Southwest Fruit Growers, L.P.(9)
10.7 Promissory Note in the amount of $3,486,868 dated as of
March 28, 1990 issued by Southwest Fruit Growers, L.P.
in favor of the Company (Hyder Note)(9)
10.8 Promissory Note in the amount of $4,934,922 dated as of
March 28, 1990 issued by Southwest Fruit Growers, L.P.
in favor of the Company (Cadiz Note)(9)
10.9 Promissory Note in the amount of $3,141,344 dated as of
March 28, 1990 issued by Southwest Fruit Growers, L.P.
in favor of the Company (Farming Note)(9)
10.10 Second Amendment and Supplement to Stock Purchase and
Fee Agreement, dated December 23, 1992 between the
Company and Mark Liggett(10)
10.11 Loan Agreement dated March 15, 1995 between the
Company, CVDC and Ansbacher(11)
10.12 Fourth Loan Modification Agreement dated March 15, 1995
between the Company, CVDC and Rabobank(11)
10.13 Form of Option Agreement dated April 20, 1995 between
the Company and David Peterson(11)
10.14 Plan Support Agreement dated December 11, 1995(12)
10.15 Waiver of Certain Provisions of Plan Support Agreement
dated January 12, 1996(12)
10.16 Amended and Restated Credit Agreement between Sun World
International, Inc. and Caisse Nationale de Credit
Agricole dated September 13, 1996(4)
10.17 Promissory Note between Sun World International, Inc.
and Caisse Nationale de Credit Agricole dated September
13, 1996(4)
10.18 New Hancock Credit Agreement between Sun World
International, Inc. and John Hancock Mutual Life
Insurance Company dated September 13, 1996(4)
10.19 Secured Promissory Note between Sun World
International, Inc. and John Hancock Mutual Life
Insurance Company dated September 13, 1996(4)
10.20 Form of Employment Agreement dated September 13, 1996
between Sun World, the Company and Timothy J. Shaheen(14)
10.21 Form of Employment Agreement dated September 13, 1996
between Sun World, the Company and Stanley E. Speer(14)
21.1 Subsidiaries of the Registrant
23.1 Consent of Price Waterhouse LLP
23.2 Consent of Deloitte & Touche LLP
23.3 Consent of Miller & Holguin (included in Exhibit 5.1)
27.1 Financial Data Schedule(1)(4)(14)
______________________________
(1) Previously filed as Exhibit to the Company's Report on Form
10-Q for the quarter ended June 30, 1996
(2) Previously filed as Exhibit to the Company's Report on Form
8-K dated September 13, 1996
(3) Previously filed as Exhibit to the Company's Registration
Statement on Form S-1 (Registration No. 33-75642) declared
effective May 16, 1994
(4) Previously filed as Exhibit to the Company's Report on Form
10-Q for the quarter ended September 30, 1996
(5) Previously filed as Exhibit to the Company's Report on Form
8-K dated May 6, 1992
(6) Previously filed as Exhibit to the Company's Annual Report
on Form 10-K for the fiscal year ended March 31, 1996
(7) Previously filed as Exhibit to the Company's Annual Report
on Form 10-K for the fiscal year ended March 31, 1989
(8) Previously filed as Exhibit to the Company's Annual Report
on Form 10-K for the fiscal year ended March 31, 1988
(9) Previously filed as Exhibit to the Company's Annual Report
on Form 10-K for the fiscal year ended March 31, 1990
(10) Previously filed as Exhibit to the Company's Annual Report
on Form 10-K for the fiscal year ended March 31, 1993
(11) Previously filed as Exhibit to the Company's Annual Report
on Form 10-K for the fiscal year ended March 31, 1995
(12) Previously filed as Exhibit to the Company's Report on Form
10-Q for the quarter ended December 31, 1995
(13) Previously filed as Exhibit A to the Company's Proxy
Statement relating to the Annual Meeting of Stockholders
held on November 8, 1996
(14) Previously filed as Exhibit to the Company's Transition Report
on Form 10-K for the nine months ended December 31, 1996.
(b) FINANCIAL STATEMENT SCHEDULES
-----------------------------------
The following financial statement schedules are filed as
part of this Registration Statement and should be read in
conjunction with the consolidated financial statements of the
Company:
SCHEDULE PAGE
Schedule I: Condensed Financial Information
of Registrant S-1
Schedule II: Valuation and Qualifying Accounts S-4
Schedules not listed above have been omitted because they
are not applicable or are not required or the information
required to be set forth therein is included in the Company's
Consolidated Financial Statements or the Notes thereto.
ITEM 17. UNDERTAKINGS.
---------------
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or
sales are being made, a post-effective amendment to this
registration statement:
(i) To include any prospectus required by section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or
events arising after the effective date of the registration
statement (or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement;
(iii) To include any material information with
respect to the plan of distribution not previously disclosed in
the registration statement or any material change to such
information in the registration statement.
(2) That, for the purpose of determining any liability
under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which
remain unsold at the termination of the offering.
(h) Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to directors,
officers and controlling persons of the Registrant pursuant to
the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the Registrant has duly caused this Amendment No. 1 to Registration
Statement No. 333-19109 to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Los Angeles, State of California,
on Apri1 29, 1997.
CADIZ LAND COMPANY, INC.
By: /s/ Keith Brackpool
---------------------------------
Keith Brackpool
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933,
this Amendment No. 1 to Registration Statement No. 333-19109 has
been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
- -------------------- --------------------- -----------------------
/S/ Dwight W. Makins Chairman of the Board April 29, 1997
---------------- and Director
Dwight W. Makins
/S/ Keith Brackpool Chief Executive Officer April 29, 1997
--------------- and Director
Keith Brackpool (Principal Executive
Officer)
/S/ J.F.R. Hammond Director April 29, 1997
---------------
J.F.R. Hammond
/S/ Stephen D. Weinress Director April 29, 1997
-------------------
Stephen D. Weinress
/S/ Susan K. Chapman Chief Financial Officer April 29, 1997
---------------- and Secretary
Susan K. Chapman (Principal Financial &
Accounting Officer)
INDEX TO FINANCIAL STATEMENT SCHEDULES
Schedule I: Condensed Financial Information of Registrant.....S-1
Scheudle II: Valuation and Qualify Accounts....................S-4
SCHEDULE I - CONDENSED FINANCIAL INFORMATION of REGISTRANT
Consolidated Balance Sheet
December 31, 1996
($ in thousands)
Assets
------
Current assets:
Cash and cash equivalents $ 2,132
Accounts receivable, net 31
Inventories 7
Due from subsidiary 332
Prepaid expenses and other 274
----------
Total current assets 2,776
Investment in subsidiary 42,460
Property, plant and equipment, net 11,241
Land held for development 12,671
Water rights and transfer and
storage projects 2,683
Other assets 150
Excess purchase price over net
assets acquired, net 4,981
----------
$ 76,962
==========
Liabilities, Redeemable Preferred Stock, Preferred Stock,
Common Stock & Other Stockholders' Equity
--------------------------------------------------------
Current liabilities:
Accounts payable $ 1,332
Accrued liabilities 1,513
Deferred revenue 375
Long-term debt, current portion 518
----------
Total current liabilities 3,738
Long-term debt 17,992
Other Liabilities 60
Commitments and contingencies
Series A redeemable preferred stock -
$.01 par value; ($1,000 liquidation value);
60,000 shares authorized;
27,431 shares issued and outstanding at
December 31, 1996 27,431
Preferred stock - $.01 par value;
40,000 shares authorized,
340 shares issued and outstanding at
December 31, 1996 -
Common stock - $.01 par value; 45,000,000
shares authorized; shares issued and
outstanding - 23,445,868 at
December 31, 1996 and 19,247,611 at
March 31, 1996 234
Additional paid-in capital 88,574
Accumulated deficit (61,067)
--------
$ 76,962
==========
See accompanying notes to the consolidated financial statements.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION of REGRISTRANT (Continued)
Consolidated Statement of Cash Flows
($ in thousands)
For the Nine Months
Ended
December 31, 1996
-------------------
Cash flows from operating activities:
Net loss $ (5,174)
Adjustments to reconcile net
loss to cash used for
operating activities:
Depreciation and amortization 1,388
Interest capitalized to debt 481
Changes in operating assets
and liabilities:
Decrease in accounts receivable 411
Decrease in inventories 259
Increase in due from subsidiary (923)
Increase in prepaid expenses and other (317)
Decrease in accounts payable (441)
Increase in accrued liabilities 219
Increase in deferred revenue 375
---------
Net cash used for operating
activities (3,722)
---------
Cash flows from investing activities:
Additions to property, plant
and equipment (27)
Land purchase and development (490)
Water transfer and storage projects (187)
Acquisition of Sun World (36,587)
--------
Net cash used for investing
activities (37,291)
--------
Cash flows from financing activities:
Net proceeds from issuance of stock 37,761
Proceeds from short-term debt 347
Principal payments on short-term debt (17)
Dividends paid on conversion of
preferred stock (99)
--------
Net cash provided by
financing activities 37,992
Net decrease in cash and cash equivalents (3,021)
Cash and cash equivalents, beginning of period 5,153
--------
Cash and cash equivalents, end of period $ 2,132
=========
See accompanying notes to the consolidated financial statements.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION of REGISTRANT (Continued)
Consolidated Statement of Operations
(In thousands except per share data)
For the Nine Months
Ended
December 31, 1996
-----------------
Revenues $ 1,278
--------
Costs and expenses:
Cost of sales 1,329
Resource development 1,133
Landfill prevention activities 394
General and administrative 2,073
Depreciation 598
Amortization 175
--------
Total costs and expenses 5,702
--------
Operating loss (4,424)
Interest expense, net 1,391
--------
Net loss before income taxes (5,815)
Income tax benefit 641
--------
Net Loss (5,174)
Less: Preferred stock dividends (674)
Imputed dividend on preferred stock (2,451)
---------
Net loss applicable to common stock $ (8,299)
=========
Net loss per common share $ (.41)
=========
Weighted average shares outstanding 20,500
=========
See accompanying notes to the consolidated financial statements.
SCHEDULE II - VALUATION & QUALIFYING ACCOUNTS
For the nine ended December 31, 1996 and the years ended
March 31, 1996 and 1995
($ in thousands)
Additions
Balance Charge -----------------
at to Charge Balance
Beginning Costs to at
of and Other Deduc- End of
Period Expenses Accounts tions Period
----------- -------- -------- ----- --------
Nine months ended
December 31, 1996
Allowance for
doubtful accounts $ -0- $ 107 $ 373 $ -0- $ 480
Amortization of excess
of purchase price over
net assets acquired 1,851 175 -0- -0- 2,026
-------- ------ ------ ------ ------
$ 1,851 $ 282 $ 373 $ -0- $ 2,506
======== ====== ====== ====== =======
Fiscal year ended
March 31, 1996
Allowance for
doubtful accounts $ -0- $ -0- $ -0- $ -0- $ -0-
Amortization of excess
of purchase price over
net assets acquired 1,617 234 -0- -0- 1,851
-------- ------- ------ ------ ------
$ 1,617 $ 234 $ -0- $ -0- $ 1,851
======== ======= ====== ====== =======
Fiscal year ended
March 31, 1995
Allowance for
doubtful accounts $ -0- $ -0- $ -0- $ -0- $ -0-
Amortization of excess
of purchase price over
net assets acquired 1,383 234 -0- -0- 1,617
-------- ------- ------- ------- -------
$ 1,383 $ 234 $ -0- $ -0- $ 1,617
======== ======= ======= ======= =======
EXHIBIT 4.5
-----------
SUN WORLD INTERNATIONAL, INC.,
Issuer
CADIZ LAND COMPANY, INC.,
Parent Guarantor
AGRI-LAND REALTY, INC.,
SUN WORLD MANAGEMENT CORPORATION,
SUN WORLD AVOCADO,
SUN WORLD EXPORT, INC.,
SUN WORLD BRANDS,
SUN WORLD/RAYO,
DINUBA PACKING CORPORATION,
SFC MARKETING CORPORATION,
SUN HARVEST, INC.,
PACIFIC FARM SERVICE, INC.,
BIG VALLEY LEASING, INC.,
SUN DESERT, INC., and
COACHELLA GROWERS,
Subsidiary Guarantors
$115,000,000
11-1/4% First Mortgage Notes due April 15, 2004
_____________
INDENTURE
Dated as of April 16, 1997
_____________
IBJ SCHRODER BANK & TRUST COMPANY
Trustee <PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
Section 1.01. Definitions . . . . . . . . . . . . . . . . . . 1
Section 1.02. Other Definitions . . . . . . . . . . . . . . . 14
Section 1.03. Incorporation by Reference of Trust Indenture Act 15
Section 1.04. Rules of Construction . . . . . . . . . . . . . 16
ARTICLE 2
THE NOTES
Section 2.01. Form and Dating . . . . . . . . . . . . . . . . 16
Section 2.02. Execution and Authentication. . . . . . . . . . 16
Section 2.03. Registrar and Paying Agent. . . . . . . . . . . 17
Section 2.04. Paying Agent to Hold Money in Trust . . . . . . 17
Section 2.05. Holder Lists. . . . . . . . . . . . . . . . . . 18
Section 2.06. Transfer and Exchange . . . . . . . . . . . . . 18
Section 2.07. Replacement Notes . . . . . . . . . . . . . . . 23
Section 2.08. Outstanding Notes . . . . . . . . . . . . . . . 24
Section 2.09. Treasury Notes. . . . . . . . . . . . . . . . . 24
Section 2.10. Temporary Notes . . . . . . . . . . . . . . . . 24
Section 2.11. Cancellation. . . . . . . . . . . . . . . . . . 24
Section 2.12. Defaulted Interest. . . . . . . . . . . . . . . 25
ARTICLE 3
REDEMPTION AND PREPAYMENT
Section 3.01. Notices to Trustee. . . . . . . . . . . . . . . 25
Section 3.02. Selection of Notes to Be Redeemed . . . . . . . 25
Section 3.03. Notice of Redemption. . . . . . . . . . . . . . 26
Section 3.04. Effect of Notice of Redemption. . . . . . . . . 26
Section 3.05. Deposit of Redemption Price . . . . . . . . . . 26
Section 3.06. Notes Redeemed in Part. . . . . . . . . . . . . 27
Section 3.07. Optional Redemption . . . . . . . . . . . . . . 27
Section 3.08. Mandatory Redemption. . . . . . . . . . . . . . 27
Section 3.09. Offer to Purchase by Application of Excess Proceeds 27
ARTICLE 4
COVENANTS
Section 4.01. Payment of Notes. . . . . . . . . . . . . . . . 29
Section 4.02. Maintenance of Office or Agency . . . . . . . . 29
Section 4.03. Reports . . . . . . . . . . . . . . . . . . . . 30
Section 4.04. Compliance Certificate. . . . . . . . . . . . . 31
Section 4.05. Taxes . . . . . . . . . . . . . . . . . . . . . 31
Section 4.06. Stay, Extension and Usury Laws. . . . . . . . . 31
Section 4.07. Restricted Payments . . . . . . . . . . . . . . 32
Section 4.08. Dividend and Other Payment Restrictions Affecting
Subsidiaries. . . . . . . . . . . . . . . . . . 35
Section 4.09. Incurrence of Indebtedness and Issuance of
Preferred Stock . . . . . . . . . . . . . . . . 35
Section 4.10. Asset Sales . . . . . . . . . . . . . . . . . . 37
Section 4.11. Transactions with Affiliates. . . . . . . . . . 39
Section 4.12. Liens . . . . . . . . . . . . . . . . . . . . . 39
Section 4.13. Line of Business. . . . . . . . . . . . . . . . 40
Section 4.14. Corporate Existence . . . . . . . . . . . . . . 40
Section 4.15. Offer to Repurchase Upon Change of Control. . . 40
Section 4.16 Additional Subsidiary Guarantees. . . . . . . . 41
Section 4.17 Sale and Leaseback Transactions . . . . . . . . 41
Section 4.18 Limitation on Issuances and Sales of
Capital Stock of Wholly-Owned Subsidiaries . . 41
Section 4.19 Advances. . . . . . . . . . . . . . . . . . . . 42
Section 4.20 Collateral Documents. . . . . . . . . . . . . . 42
Section 4.21 Impairment of Security Interests. . . . . . . . 42
Section 4.22 Payments for Consent. . . . . . . . . . . . . . 42
Section 4.23 Maintenance of Properties and Insurance . . . . 42
ARTICLE 5
SUCCESSORS
Section 5.01. Merger, Consolidation, or Sale of Assets. . . . 43
Section 5.02. Successor Corporation Substituted . . . . . . . 44
ARTICLE 6
DEFAULTS AND REMEDIES
Section 6.01. Events of Default . . . . . . . . . . . . . . . 44
Section 6.02. Acceleration. . . . . . . . . . . . . . . . . . 46
Section 6.03. Other Remedies. . . . . . . . . . . . . . . . . 46
Section 6.04. Waiver of Past Defaults . . . . . . . . . . . . 46
Section 6.05. Control by Majority . . . . . . . . . . . . . . 47
Section 6.06. Limitation on Suits . . . . . . . . . . . . . . 47
Section 6.07. Rights of Holders of Notes to Receive Payment . 47
Section 6.08. Collection Suit by Trustee. . . . . . . . . . . 48
Section 6.09. Trustee May File Proofs of Claim. . . . . . . . 48
Section 6.10. Priorities. . . . . . . . . . . . . . . . . . . 48
Section 6.11. Undertaking for Costs . . . . . . . . . . . . . 49
ARTICLE 7
TRUSTEE
Section 7.01. Duties of Trustee . . . . . . . . . . . . . . . 49
Section 7.02. Rights of Trustee . . . . . . . . . . . . . . . 50
Section 7.03. Individual Rights of Trustee. . . . . . . . . . 50
Section 7.04. Trustee's Disclaimer. . . . . . . . . . . . . . 51
Section 7.05. Notice of Defaults. . . . . . . . . . . . . . . 51
Section 7.06. Reports by Trustee to Holders of the Notes. . . 51
Section 7.07. Compensation and Indemnity. . . . . . . . . . . 51
Section 7.08. Replacement of Trustee. . . . . . . . . . . . . 52
Section 7.09. Successor Trustee by Merger, etc. . . . . . . . 53
Section 7.10. Eligibility; Disqualification . . . . . . . . . 53
Section 7.11. Preferential Collection of Claims Against Issuer 53
Section 7.12 Trustee Risk. . . . . . . . . . . . . . . . . . 53
Section 7.13 Appointment of Co-Trustee . . . . . . . . . . . 53
ARTICLE 8
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Section 8.01. Option to Effect Legal Defeasance or
Covenant Defeasance . . . . . . . . . . . . . . 54
Section 8.02. Legal Defeasance and Discharge. . . . . . . . . 54
Section 8.03. Covenant Defeasance . . . . . . . . . . . . . . 55
Section 8.04. Conditions to Legal or Covenant Defeasance. . . 55
Section 8.05. Deposited Money and Government Securities
to be Held in Trust; Other
Miscellaneous Provisions. . . . . . . . . . . . 56
Section 8.06. Repayment to Issuer . . . . . . . . . . . . . . 57
Section 8.07. Reinstatement . . . . . . . . . . . . . . . . . 57
ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER
Section 9.01. Without Consent of Holders of Notes . . . . . . 57
Section 9.02. With Consent of Holders of Notes. . . . . . . . 58
Section 9.03. Compliance with Trust Indenture Act . . . . . . 59
Section 9.04. Revocation and Effect of Consents . . . . . . . 59
Section 9.05. Notation on or Exchange of Notes. . . . . . . . 60
Section 9.06. Trustee to Sign Amendments, etc . . . . . . . . 60
ARTICLE 10
COLLATERAL AND SECURITY
Section 10.01. Collateral and Security Documents;
Additional Collateral. . . . . . . . . . . . . . 60
Section 10.02. Recording, Registration and Opinions . . . . . . 62
Section 10.03. Release of Collateral. . . . . . . . . . . . . . 63
Section 10.04. Possession and Use of Collateral . . . . . . . . 64
Section 10.05. Specified Releases of Collateral . . . . . . . . 64
Section 10.06. Disposition of Collateral Without Release. . . . 66
Section 10.07. Form and Sufficiency of Release. . . . . . . . . 67
Section 10.08. Purchaser Protected. . . . . . . . . . . . . . . 67
Section 10.09. Authorization of Actions To Be Taken by the
Trustee Under the Collateral Documents . . . . . 68
Section 10.10. Authorization of Receipt of Funds by the
Trustee Under the Collateral Documents . . . . . 68
ARTICLE 11
APPLICATION OF TRUST MONIES
Section 11.01. Collateral Account . . . . . . . . . . . . . . . 68
Section 11.02. Withdrawal of Insurance Proceeds and
Condemnation Awards. . . . . . . . . . . . . . . 68
Section 11.03. Withdrawal of Net Cash Proceeds to Fund
an Asset Sale Offer. . . . . . . . . . . . . . . 70
Section 11.04. Withdrawal of Trust Monies for Investment
in Replacement Assets. . . . . . . . . . . . . . 71
Section 11.05. Investment of Trust Monies . . . . . . . . . . . 72
ARTICLE 12
GUARANTEES
Section 12.01 Guarantees. . . . . . . . . . . . . . . . . . . 72
Section 12.02 Execution and Delivery of Guarantees. . . . . . 75
Section 12.03 Guarantors May Consolidate, etc., on
Certain Terms. . . . . . . . . . . . . . . . . . 75
Section 12.04 Releases Following Sale of Assets . . . . . . . 76
Section 12.05 Limitation of Guarantor's Liability . . . . . . 76
Section 12.06 Application of Certain Terms and Provisions
to the Guarantors . . . . . . . . . . . . . . . 77
ARTICLE 13
MISCELLANEOUS
Section 13.01. Trust Indenture Act Controls. . . . . . . . . . 77
Section 13.02. Notices . . . . . . . . . . . . . . . . . . . . 77
Section 13.03. Communication by Holders of Notes with
Other Holders of Notes . . . . . . . . . . . . 79
Section 13.04. Certificate and Opinion as to
Conditions Precedent. . . .. . . . . . . . . . . 79
Section 13.05. Statements Required in Certificate or Opinion . 79
Section 13.06. Rules by Trustee and Agents . . . . . . . . . . 79
Section 13.07. No Personal Liability of Directors,
Officers, Employees and Stockholders. . . . . . 79
Section 13.08. Governing Law . . . . . . . . . . . . . . . . . 80
Section 13.09. No Adverse Interpretation of Other Agreements . 80
Section 13.10. Successors. . . . . . . . . . . . . . . . . . . 80
Section 13.11. Severability. . . . . . . . . . . . . . . . . . 80
Section 13.12. Counterpart Originals . . . . . . . . . . . . . 80
Section 13.13. Table of Contents, Headings, etc. . . . . . . . 80
EXHIBITS
Exhibit A FORM OF NOTE
Exhibit B CERTIFICATES OF TRANSFEROR
Exhibit C DEED OF TRUST
Exhibit D INTERCREDITOR AGREEMENT
Exhibit E ISSUER PLEDGE AGREEMENT
Exhibit F PARENT PLEDGE AGREEMENT
Exhibit G SECURITY AGREEMENT
INDENTURE dated as of April 16, 1997 among Sun World International, Inc.,
a Delaware corporation (the "Issuer"), Cadiz Land Company, Inc., a Delaware
corporation and the parent of Issuer ("Parent"), the subsidiary guarantors
of the Issuer who have signed the Guarantee (the "Guarantee") attached to
the Note (the "Subsidiary Guarantors" and, together with Parent, the
"Guarantors") and IBJ Schroder Bank & Trust Company, a New York banking
corporation, as trustee (the "Trustee").
The Issuer, the Guarantors and the Trustee agree as follows for the
benefit of each other and for the equal and ratable benefit of the Holders
of the 11-1/4% Series A First Mortgage Notes due 2004 (the "Series A Notes")
and the 11-1/4% Series B First Mortgage Notes due 2004 (the "Series B Notes"
and, together with the Series A Notes, the "Notes"):
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
Section 1.01. Definitions.
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"ACQUIRED DEBT" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person,
including, without limitation, Indebtedness incurred in connection with, or
in contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"AFFILIATE" of any specified Person means any other Person directly
or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For purposes of this definition,
"control" (including, with correlative meanings, the terms "controlling,"
"controlled by" and "under common control with"), as used with respect to
any Person, shall mean the possession, directly or indirectly, of the power
to direct or cause the direction of the management or policies of such
Person, whether through the ownership of voting securities, by agreement or
otherwise; provided that beneficial ownership of 10% or more of the voting
securities of a Person shall be deemed to be control.
"AFTER-ACQUIRED PROPERTY" means assets or property acquired after
the Issue Date.
"AGENT" means any Registrar, Paying Agent or co-registrar.
"ASSET SALE" means (i) the sale, lease, conveyance or other
disposition of any assets or rights (including, without limitation, by way
of a sale and leaseback) other than sales of inventory in the ordinary
course of business consistent with past practices (provided that the sale,
lease, conveyance or other disposition of all or substantially all of the
assets of Parent, the Issuer and the Issuer's Subsidiaries taken as a whole
will be governed by Section 4.15 and/or Section 5.01 and not by the
provisions of Section 4.10), and (ii) the issue or sale by Parent, the
Issuer or any of its Subsidiaries of Equity Interests of the Issuer or any
of the Issuer's Subsidiaries, in the case of either clause (i) or (ii),
whether in a single transaction or a series of related transactions (a) that
have a fair market value in excess of $1.0 million or (b) for net proceeds
in excess of $1.0 million. Notwithstanding the foregoing, none of the
following will constitute Asset Sales: (i) a transfer of assets by Parent
or the Issuer to a Wholly Owned Restricted Subsidiary of the Issuer or by
a Wholly Owned Restricted Subsidiary of the Issuer to the Issuer or to
another Wholly Owned Restricted Subsidiary of the Issuer, (ii) an issuance
of Equity Interests by a Wholly Owned Restricted Subsidiary of the Issuer
to the Issuer or to another Wholly Owned Restricted Subsidiary of the
Issuer, (iii) a Restricted Payment that is permitted by Section 4.07, and
(iv) a transfer of Revolving Credit Agreement Collateral.
"ATTRIBUTABLE DEBT" in respect of a sale and leaseback transaction
means, at the time of determination, the present value (discounted at the
rate of interest implicit in such transaction, determined in accordance with
GAAP) of the obligation of the lessee for net rental payments during the
remaining term of the lease included in such sale and leaseback transaction
(including any period for which such lease has been extended or may, at the
option of the lessor, be extended).
"BANKRUPTCY LAW" means Title 11, U.S. Code or any similar federal
or state law for the relief of debtors.
"BOARD OF DIRECTORS" means the Board of Directors of the Issuer, or
any authorized committee of the Board of Directors.
"BUSINESS DAY" means any day other than a Legal Holiday.
"CADIZ CREDIT AGREEMENT" means a credit agreement to be entered into
between Parent and a lending institution providing for revolving credit
borrowings, including any related notes, guarantees, collateral documents,
instruments and agreements executed in connection therewith, and in each
case as amended, modified, renewed, refunded, replaced or refinanced from
time to time; provided, however, that neither the Issuer nor any Subsidiary
of the Issuer may provide any guarantee of such Indebtedness.
"CADIZ WATER PROJECT" means the development of the system for
groundwater transfer by Parent of the water underlying Parent's properties
in the Cadiz and Fenner valleys of eastern California to certain public
agencies, such as the Metropolitan Water District, including the
construction of a pipeline between Parent's properties and the Colorado
River Aqueduct.
"CAPITAL LEASE OBLIGATION" means, at the time any determination
thereof is to be made, the amount of the liability in respect of a capital
lease that would at such time be required to be capitalized on a balance
sheet in accordance with GAAP.
"CAPITAL STOCK" means (i) in the case of a corporation, corporate
stock, (ii) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock, (iii) in the case of a partnership or
limited liability company, partnership or membership interests (whether
general or limited) and (iv) any other interest or participation that
confers on a Person the right to receive a share of the profits and losses
of, or distributions of assets of, the issuing Person.
"CASH EQUIVALENTS" means (i) United States dollars, (ii) any
evidence of Indebtedness with a maturity of 365 days or less issued or
directly and fully guaranteed or insured by the United States of America or
any agency or instrumentality thereof (provided that the full faith and
credit of the United States of America is pledged in support thereof); (iii)
certificates of deposit or acceptances with a maturity of 365 days or less
of any financial institution that is a member of the Federal Reserve System
having a combined capital and surplus and undivided profits of not less than
$500,000,000; (iv) certificates of deposit with a maturity of 365 days or
less of any financial institution that is organized under the laws of the
United States, or any state thereof or the District of Columbia that are
rated at least A-2 by Standard & Poor's Corporation or at least P-2 by
Moody's Investors Service, Inc. or at least an equivalent rating category
of another nationally recognized securities rating agency; (v) repurchase
agreements and reverse repurchase agreements relating to marketable direct
obligations issued or unconditionally guaranteed by the government of the
United States of America or issued by any agency thereof and backed by the
full faith and credit of the United States of America, in each case maturing
within 365 days from the date of acquisition; provided that the terms of
such agreements comply with the guidelines set forth in the Federal
Financial Agreements of Depository Institutions With Securities Dealers and
Others, as adopted by the Comptroller of the Currency on October 31, 1985;
and (vi) commercial paper having the highest rating obtainable from Moody's
Investor Service, Inc. or Standard & Poor's Corporation and in each case
maturing within six months after the date of acquisition.
"CHANGE OF CONTROL" means the occurrence of any of the following:
(i) the sale, lease, transfer, conveyance or other disposition (other than
by way of merger or consolidation), in one or a series of related
transactions, of all or substantially all of the assets of Parent, the
Issuer and the Issuer's Subsidiaries taken as a whole to any "person" (as
such term is used in Section 13(d)(3) of the Exchange Act), (ii) the
adoption of a plan relating to the liquidation or dissolution of Parent or
the Issuer, (iii) the consummation of any transaction (including, without
limitation, any merger or consolidation) the result of which is that any
"person" (as defined above), becomes the "beneficial owner" (as such term
is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that
a person shall be deemed to have "beneficial ownership" of all securities
that such person has the right to acquire, whether such right is currently
exercisable or is exercisable only upon the occurrence of a subsequent
condition), directly or indirectly, of more than 35% of the Voting Stock of
Parent (measured by voting power rather than number of shares), (iv) the
first day on which a majority of the members of the Board of Directors of
the Issuer are not Continuing Directors, (v) the first day on which Parent
ceases to own 100% of the outstanding Equity Interests of the Issuer, or
(vi) Parent consolidates with, or merges with or into, any Person or sells,
assigns, conveys, transfers, leases or otherwise disposes of all or
substantially all of its assets to any Person, or any Person consolidates
with, or merges with or into, Parent, in any such event pursuant to a
transaction in which any of the outstanding Voting Stock of Parent is
converted into or exchanged for cash, securities or other property, other
than any such transaction where the Voting Stock of Parent outstanding
immediately prior to such transaction is converted into or exchanged for
Voting Stock (other than Disqualified Stock) of the surviving or transferee
Person constituting a majority of the outstanding shares of such Voting
Stock of such surviving or transferee Person (immediately after giving
effect to such issuance).
"COLLATERAL" means, all assets now owned or hereafter acquired, of
Parent, the Issuer or any Subsidiary of the Issuer, other than the Excluded
Assets.
"COLLATERAL ACCOUNT" means the collateral account established
pursuant to Section 11.01.
"COLLATERAL DOCUMENTS" mean, collectively, the Security Agreement,
the Deed of Trust, the Issuer Pledge Agreement, the Parent Pledge Agreement,
the Intercreditor Agreement and any other pledges, agreements, instruments,
financing statements, filing or other documents that evidence, set forth or
limit the Lien in favor of the Trustee in the Collateral.
"CONSOLIDATED CASH FLOW" means, with respect to any Person for any
period, the Consolidated Net Income of such Person for such period plus (i)
an amount equal to any extraordinary loss plus any net loss realized in
connection with an Asset Sale (to the extent such losses were deducted in
computing such Consolidated Net Income), plus (ii) provision for taxes based
on income or profits of such Person and its Subsidiaries for such period,
to the extent that such provision for taxes was included in computing such
Consolidated Net Income, plus (iii) consolidated interest expense of such
Person and its Subsidiaries for such period, whether paid or accrued and
whether or not capitalized (including, without limitation, amortization of
debt issuance costs and original issue discount, non-cash interest payments,
the interest component of any deferred payment obligations, the interest
component of all payments associated with Capital Lease Obligations, imputed
interest with respect to Attributable Debt, commissions, discounts and other
fees and charges incurred in respect of letter of credit or bankers'
acceptance financings, and net payments (if any) pursuant to Hedging
Obligations), to the extent that any such expense was deducted in computing
such Consolidated Net Income, plus (iv) depreciation, amortization
(including amortization of goodwill and other intangibles but excluding
amortization of prepaid cash expenses that were paid in a prior period) and
other non-cash expenses (excluding any such non-cash expense to the extent
that it represents an accrual of or reserve for cash expenses in any future
period or amortization of a prepaid cash expense that was paid in a prior
period) of such Person and its Subsidiaries for such period to the extent
that such depreciation, amortization and other non-cash expenses were
deducted in computing such Consolidated Net Income, minus (v) non-cash
non-recurring items whether or not considered extraordinary under GAAP,
in each case, on a consolidated basis and determined in accordance with GAAP.
Notwithstanding the foregoing, the provision for taxes based on the income
or profits of, and the depreciation and amortization and other non-cash
charges of, a Subsidiary of a Person shall be added to Consolidated Net
Income to compute Consolidated Cash Flow only to the extent (and in the same
proportion) that the Net Income of such Subsidiary was included in
calculating the Consolidated Net Income of such Person and only if a
corresponding amount would be permitted at the date of determination to be
dividended to Parent or to the Issuer without prior approval (that has not
been obtained), pursuant to the terms of its charter and all agreements,
instruments, judgments, decrees, orders, statutes, rules and governmental
regulations applicable to the Issuer, the Subsidiary or its stockholders.
"CONSOLIDATED LEASE EXPENSE" means, with respect to any Person for
any period, the aggregate rental obligations of such Person and its
consolidated Restricted Subsidiaries determined on a consolidated basis in
accordance with GAAP payable in respect of such period under leases of real
property (net of income from subleases thereof, but including taxes,
insurance, maintenance and similar expenses that the lessee is obligated to
pay under the terms of such leases), whether or not such obligations are
reflected as liabilities or commitments on a consolidated balance sheet of
such Person and its Restricted Subsidiaries or in the notes thereto.
"CONSOLIDATED NET INCOME" means, with respect to any Person for any
period, the aggregate of the Net Income of such Person and its Subsidiaries
for such period, on a consolidated basis, determined in accordance with
GAAP; provided that (i) the Net Income (but not loss) of any Person that is
not a Subsidiary or that is accounted for by the equity method of accounting
shall be included only to the extent of the amount of dividends or
distributions paid in cash to the referent Person or a Wholly Owned
Subsidiary thereof, (ii) the Net Income of any Subsidiary shall be excluded
to the extent that the declaration or payment of dividends or similar
distributions by that Subsidiary of that Net Income is not at the date of
determination permitted without any prior governmental approval (that has
not been obtained) or, directly or indirectly, by operation of the terms of
its charter or any agreement, instrument, judgment, decree, order, statute,
rule or governmental regulation applicable to that Subsidiary or its
stockholders, (iii) the Net Income of any Person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition
shall be excluded, (iv) the cumulative effect of a change in accounting
principles shall be excluded, and (v) the Net Income of any Unrestricted
Subsidiary shall be excluded, whether or not distributed to the Issuer or
one of its Subsidiaries.
"CONSOLIDATED NET WORTH" means, with respect to any Person as of any
date, the sum of (i) the consolidated equity of the common stockholders of
such Person and its consolidated Subsidiaries as of such date plus (ii) the
respective amounts reported on such Person's balance sheet as of such date
with respect to any series of preferred stock (other than Disqualified
Stock) that by its terms is not entitled to the payment of dividends unless
such dividends may be declared and paid only out of net earnings in respect
of the year of such declaration and payment, but only to the extent of any
cash received by such Person upon issuance of such preferred stock, less (x)
all write-ups (other than write-ups resulting from foreign currency
translations and write-ups of tangible assets of a going concern business
made within 12 months after the acquisition of such business) subsequent to
the Issue Date in the book value of any asset owned by such Person or a
consolidated Subsidiary of such Person, (y) all investments as of such date
in unconsolidated Subsidiaries and in Persons that are not Subsidiaries
(except, in each case, Permitted Investments), and (z) all unamortized debt
discount and expense and unamortized deferred charges as of such date, all
of the foregoing determined in accordance with GAAP.
"CONTINUING DIRECTORS" means, as of the date of determination, any
member of the Board of Directors of a Person who (i) was a member of such
Board of Directors on the Issue Date or (ii) was nominated for election or
elected to such Board of Directors with the affirmative vote of at least a
majority of the Continuing Directors who were members of such Board at the
time of such nomination or election.
"CORPORATE TRUST OFFICE OF THE TRUSTEE" shall be at the address of
the Trustee specified in Section 13.02 hereof or such other address as to
which the Trustee may give notice to the Issuer.
"DEED OF TRUST" means individually and in the aggregate, the Deeds
of Trust, each in the form of Exhibit C, executed by the Issuer for the
benefit of the Trustee and the ratable benefit of the Holders, as the same
may be amended, supplemented or otherwise modified from time to time.
"DEFAULT" means any event that is or with the passage of time or the
giving of notice or both would be an Event of Default.
"DEFINITIVE NOTES" means Notes that are in the form of the Notes
attached hereto as Exhibit A, that do not include the information called for
by footnotes 1 and 2 thereof.
"DEPOSITORY" means, with respect to the Notes issuable or issued in
whole or in part in global form, the Person specified in Section 2.03 hereof
as the Depository with respect to the Notes, until a successor shall have
been appointed and become such pursuant to the applicable provision of this
Indenture, and, thereafter, "Depository" shall mean or include such
successor.
"DISQUALIFIED STOCK" means any Capital Stock that, by its terms (or
by the terms of any security into which it is convertible or for which it
is exchangeable), or upon the happening of any event, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise,
or redeemable at the option of the Holder thereof, in whole or in part, on
or prior to the date that is 91 days after the date on which the Notes
mature.
"EQUITY INTERESTS" means Capital Stock and all warrants, options or
other rights to acquire Capital Stock (but excluding any debt security that
is convertible into, or exchangeable for, Capital Stock).
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"EXCHANGE OFFER" means the offer that may be made by the Issuer
pursuant to the Registration Rights Agreement to exchange Series B Notes for
Series A Notes.
"EXCLUDED ASSETS" means (i) all of the assets of Parent other than
the stock of the Issuer, (ii) the Revolving Credit Agreement Collateral, and
(iii) the Zenith Collateral.
"EXISTING INDEBTEDNESS" means up to $16.8 million in aggregate
principal amount of Indebtedness of Parent, the Issuer and its Restricted
Subsidiaries (other than Indebtedness under the Cadiz Credit Agreement and
the Revolving Credit Agreement) in existence on the Issue Date, until such
amounts are repaid.
"FIXED CHARGES" means, with respect to any Person for any period,
the sum, without duplication, of (i) the consolidated interest expense of
such Person and its Restricted Subsidiaries for such period, whether paid
or accrued (including, without limitation, amortization of debt issuance
costs and original issue discount, non-cash interest payments, the interest
component of any deferred payment obligations, the interest component of all
payments associated with Capital Lease Obligations, imputed interest with
respect to Attributable Debt, commissions, discounts and other fees and
charges incurred in respect of letter of credit or bankers' acceptance
financings, and net payments (if any) pursuant to Hedging Obligations) and
(ii) the consolidated interest expense of such Person and its Restricted
Subsidiaries that was capitalized during such period, and (iii) any interest
expense on Indebtedness of another Person that is Guarantied by such Person
or one of its Restricted Subsidiaries or secured by a Lien on assets of such
Person or one of its Restricted Subsidiaries (whether or not such Guarantee
or Lien is called upon) and (iv) the product of (a) all dividend payments,
whether or not in cash, on any series of preferred stock of such Person or
any of its Restricted Subsidiaries, other than dividend payments on Equity
Interests payable solely in Equity Interests of Parent or the Issuer, as the
case may be, times (b) a fraction, the numerator of which is one and the
denominator of which is one minus the then current combined federal, state
and local statutory tax rate of such Person, expressed as a decimal, in each
case, on a consolidated basis and in accordance with GAAP; provided,
however, that the denominator in clause (b) shall be one if such dividend
or other distribution is a tax deductible expense for federal income tax
purposes under the Internal Revenue Code of 1986, as amended.
"FIXED CHARGE COVERAGE RATIO" means with respect to any Person and
its Restricted Subsidiaries for any period, the ratio of the Consolidated
Cash Flow of such Person and its Restricted Subsidiaries for such period to
the Fixed Charges of such Person and its Restricted Subsidiaries for such
period. In the event that Parent, the Issuer or any of the Issuer's
Restricted Subsidiaries incurs, assumes, Guaranties or redeems any
Indebtedness (other than revolving credit borrowings) or issues preferred
stock subsequent to the commencement of the period for which the Fixed
Charge Coverage Ratio is being calculated but prior to the date on which the
event for which the calculation of the Fixed Charge Coverage Ratio is made
(the "Calculation Date"), then the Fixed Charge Coverage Ratio shall be
calculated giving pro forma effect to such incurrence, assumption, Guarantee
or redemption of Indebtedness, or such issuance or redemption of preferred
stock, as if the same had occurred at the beginning of the applicable four-
quarter reference period. In addition, for purposes of making the
computation referred to above, (i) acquisitions that have been made by the
Issuer or any of its Restricted Subsidiaries, including through mergers or
consolidations and including any related financing transactions, during the
four-quarter reference period or subsequent to such reference period and on
or prior to the Calculation Date shall be deemed to have occurred on the
first day of the four-quarter reference period and Consolidated Cash Flow
for such reference period shall be calculated without giving effect to
clause (iii) of the proviso set forth in the definition of Consolidated Net
Income, and (ii) the Consolidated Cash Flow attributable to discontinued
operations, as determined in accordance with GAAP, and operations or
businesses disposed of prior to the Calculation Date, shall be excluded, and
(iii) the Fixed Charges attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses disposed
of prior to the Calculation Date, shall be excluded, but only to the extent
that the obligations giving rise to such Fixed Charges will not be
obligations of the referent Person or any of its Restricted Subsidiaries
following the Calculation Date.
"GAAP" means generally accepted accounting principles set forth in
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as have been approved by a significant
segment of the accounting profession, which are in effect from time to time.
"GLOBAL NOTE" means a Note that contains the paragraph referred to
in footnote 1 and the additional schedule referred to in footnote 2 to the
form of the Note attached hereto as Exhibit A.
"GOVERNMENT SECURITIES" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which
guarantee or obligations the full faith and credit of the United States is
pledged.
"GUARANTEE" means a guarantee (other than by endorsement of
negotiable instruments for collection in the ordinary course of business),
direct or indirect, in any manner (including, without limitation, letters
of credit and reimbursement agreements in respect thereof), of all or any
part of any Indebtedness.
"HEDGING OBLIGATIONS" means, with respect to any Person, the
obligations of such Person under (i) interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements and (ii) other
agreements or arrangements designed to protect such Person against
fluctuations in interest rates.
"HOLDER" means a Person in whose name a Note is registered.
"INDEBTEDNESS" means, with respect to any Person, any indebtedness
of such Person, whether or not contingent, in respect of borrowed money or
evidenced by bonds, notes, debentures or similar instruments or letters of
credit (or reimbursement agreements in respect thereof) or banker's
acceptances or representing Capital Lease Obligations or the balance
deferred and unpaid of the purchase price of any property or representing
any Hedging Obligations, except any such balance that constitutes an accrued
expense or trade payable, if and to the extent any of the foregoing
indebtedness (other than letters of credit and Hedging Obligations) would
appear as a liability upon a balance sheet of such Person prepared in
accordance with GAAP, as well as all indebtedness of others secured by a
Lien on any asset of such Person (whether or not such indebtedness is
assumed by such Person) and, to the extent not otherwise included, the
Guarantee by such Person of any indebtedness of any other Person. The
amount of any Indebtedness outstanding as of any date shall be (i) the
accreted value thereof, in the case of any Indebtedness that does not
require current payments of interest, and (ii) the principal amount thereof,
together with any interest thereon that is more than 30 days past due, in
the case of any other Indebtedness.
"INDENTURE" means this Indenture, as amended or supplemented from
time to time.
"INTERCREDITOR AGREEMENT" means the Intercreditor Agreement, in the
form of Exhibit D, between the Trustee and the agent under the Revolving
Credit Agreement, as the same may be amended, supplemented, replaced or
otherwise modified from time to time.
"INVESTMENTS" means, with respect to any Person, all investments by
such Person in other Persons (including Affiliates) in the forms of direct
or indirect loans (including guarantees of Indebtedness or other
obligations), advances or capital contributions (excluding commission,
travel and similar advances to officers and employees made in the ordinary
course of business), purchases or other acquisitions for consideration of
Indebtedness, Equity Interests or other securities, together with all items
that are or would be classified as investments on a balance sheet prepared
in accordance with GAAP. If the Issuer or any Subsidiary of the Issuer
sells or otherwise disposes of any Equity Interests of any direct or
indirect Subsidiary of the Issuer such that, after giving effect to any such
sale or disposition, such Person is no longer a Subsidiary of the Issuer,
the Issuer shall be deemed to have made an Investment on the date of any
such sale or disposition equal to the fair market value of the Equity
Interests of such Subsidiary not sold or disposed of in an amount determined
as provided in Section 4.07.
"ISSUE DATE" means the date on which the Notes are originally
issued.
"ISSUER PLEDGE AGREEMENT" means the Issuer Pledge Agreement, in the
form of Exhibit E, to be executed by the Issuer and each Subsidiary
Guarantor in favor of the Trustee for the benefit of the Trustee and the
ratable benefit of the Holders, as the same may be amended, supplemented or
otherwise modified from time to time.
"LEGAL HOLIDAY" means a Saturday, a Sunday or a day on which banking
institutions in the City of New York or at a place of payment are authorized
by law, regulation or executive order to remain closed. If a payment date
is a Legal Holiday at a place of payment, payment may be made at that place
on the next succeeding day that is not a Legal Holiday, and no interest
shall accrue for the intervening period.
"LIEN" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such
asset, whether or not filed, recorded or otherwise perfected under
applicable law (including any conditional sale or other title retention
agreement, any lease in the nature thereof, any option or other agreement
to sell or give a security interest in and any filing of or agreement to
give any financing statement under the Uniform Commercial Code (or
equivalent statutes) of any jurisdiction).
"LIQUIDATED DAMAGES" means all liquidated damages then owing
pursuant to Section 5 of the Registration Rights Agreement.
"NET INCOME" means, with respect to any Person, the net income
(loss) of such Person, determined in accordance with GAAP and before any
reduction in respect of preferred stock dividends, excluding, however,
(i) any gain (but not loss), together with any related provision for taxes
on such gain (but not loss), realized in connection with (a) any Asset Sale
(including, without limitation, dispositions pursuant to sale and leaseback
transactions) or (b) the disposition of any securities by such Person or any
of its Restricted Subsidiaries or the extinguishment of any Indebtedness of
such Person or any of its Restricted Subsidiaries and (ii) any extraordinary
or nonrecurring gain (but not loss), together with any related provision for
taxes on such extraordinary or nonrecurring gain (but not loss).
"NET INSURANCE PROCEEDS" means the insurance proceeds (excluding
liability insurance payable to the Trustee for any loss, liability or
expense incurred by it) paid as a result of damage to, or the loss,
destruction or condemnation of, all or any portion of the Collateral, less
collection costs.
"NET PROCEEDS" means the aggregate cash proceeds received by Parent,
the Issuer or any of its Restricted Subsidiaries in respect of any Asset
Sale (including, without limitation, any cash received upon the sale or
other disposition of any non-cash consideration received in any Asset Sale),
net of the direct costs relating to such Asset Sale (including, without
limitation, legal, accounting and investment banking fees, and sales
commissions) and any relocation expenses incurred as a result thereof, taxes
paid or payable as a result thereof (after taking into account any available
tax credits or deductions and any tax sharing arrangements), and any reserve
for adjustment in respect of the sale price of such asset or assets
established in accordance with GAAP.
"NON-RECOURSE DEBT" means Indebtedness: (i) as to which neither
Parent, the Issuer nor any of the Issuer's Restricted Subsidiaries (a)
provides credit support of any kind (including any undertaking, agreement
or instrument that would constitute Indebtedness), (b) is directly or
indirectly liable (as a guarantor or otherwise), or (c) constitutes the
lender; (ii) no default with respect to which (including any rights that the
holders thereof may have to take enforcement action against any Subsidiary)
would permit (upon notice, lapse of time or both) any holder of any other
Indebtedness (other than the Notes being offered hereby) of Parent, the
Issuer or any of their Restricted Subsidiaries to declare a default on such
other Indebtedness or cause the payment thereof to be accelerated or payable
prior to its stated maturity; and (iii) as to which the lenders have been
notified in writing that they will not have any recourse to the stock or
assets of Parent, the Issuer or any of their Restricted Subsidiaries;
provided, however, that in the case of Indebtedness incurred to finance a
Qualified Project, such Indebtedness shall be considered Non-Recourse Debt
if such Indebtedness meets the criteria above, other than credit support or
recourse of such Indebtedness provided by Parent's water rights or assets
directly involved in the construction or operation of such Qualified
Project.
"NOTE CUSTODIAN" means the Trustee, as custodian with respect to the
Notes in global form, or any successor entity thereto.
"OBLIGATIONS" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable
under the documentation governing any Indebtedness.
"OFFERING" means the Offering of the Notes by the Issuer.
"OFFICER" means, with respect to any Person, the Chairman of the
Board, the Chief Executive Officer, the President, the Chief Operating
Officer, the Chief Financial Officer, the Treasurer, any Assistant
Treasurer, the Controller, the Secretary or any Vice-President of such
Person.
"OFFICERS' CERTIFICATE" means a certificate signed on behalf of the
Issuer by two Officers of the Issuer, one of whom must be the principal
executive officer, the principal financial officer, the treasurer or the
principal accounting officer of the Issuer, that meets the requirements of
Section 13.05 hereof.
"OPINION OF COUNSEL" means an opinion from legal counsel who is
reasonably acceptable to the Trustee, that meets the requirements of Section
13.05 hereof. The counsel may be an employee of or counsel to the Issuer,
any Subsidiary of the Issuer or the Trustee.
"PACA" means the Perishable Agricultural Commodities Act, 7 U.S.C
499 et seq.
"PARENT" means Cadiz Land Company, Inc., a Delaware corporation.
"PARENT GUARANTEE" means the Guarantee of the Notes by Parent, in
the form of the Guarantee attached to the form of Note, Exhibit A hereto.
"PARENT PLEDGE AGREEMENT" means the Parent Pledge Agreement, in the
form of Exhibit F, to be executed by Parent in favor of the Trustee for the
benefit of the Trustee and the ratable benefit of the Holders, as the same
may be amended, supplemented or otherwise modified from time to time.
"PERMITTED BUSINESSES" means, (i) in the case of the Issuer, the
growing, harvesting, marketing, packing, distribution or processing of
produce, the development and licensing of proprietary strains of produce,
the investment in Sun Date and American Sunmelon and the Rayo water project,
and (ii) in the case of Parent, the Permitted Business of the Issuer,
together with the development of groundwater transfer and storage projects
and investment in agricultural real property.
"PERMITTED INVESTMENTS" means (a) any Investment in the Issuer or
in a Wholly Owned Restricted Subsidiary of the Issuer that is evidenced by
Capital Stock or Subsidiary Intercompany Notes and that is engaged in a
Permitted Business; (b) any Investment in Cash Equivalents; (c) any
Investment by the Issuer or any Restricted Subsidiary of the Issuer in a
Person that is evidenced by Capital Stock or Subsidiary Intercompany Notes,
if as a result of such Investment (i) such Person becomes a Wholly Owned
Restricted Subsidiary of the Issuer and a Guarantor that is engaged in the
same or a similar line of business as the Issuer and its Restricted
Subsidiaries were engaged in on the Issue Date or (ii) such Person is
merged, consolidated or amalgamated with or into, or transfers or conveys
substantially all of its assets to, or is liquidated into, the Issuer or a
Wholly Owned Restricted Subsidiary of the Issuer; (d) any Restricted
Investment made as a result of the receipt of non-cash consideration from
an Asset Sale that was made pursuant to and in compliance with Section 4.10;
(e) any acquisition of assets solely in exchange for the issuance of Equity
Interests (other than Disqualified Stock) of the Issuer; and (f) other
Investments in any Person having an aggregate fair market value (measured
on the date each such Investment was made and without giving effect to
subsequent changes in value), when taken together with all other Investments
made pursuant to this clause (f) that are at the time outstanding, not to
exceed $3.0 million.
"PERMITTED LIENS" means (i) Liens securing obligations under this
Indenture, the Notes, the Guarantees of the Notes and the Collateral
Documents; (ii) Liens on Revolving Credit Agreement Collateral securing
Revolving Indebtedness, provided that such Liens are subject to the
Intercreditor Agreement or any amendment or replacement of the Intercreditor
Agreement; (iii) Liens in favor of the Issuer or any of the Issuer's
Restricted Subsidiaries; (iv) Liens on property of a Person existing at the
time such Person is merged into or consolidated with the Issuer or any
Subsidiary of the Issuer, provided that such Liens were in existence prior
to the contemplation of such merger or consolidation and do not extend to
any assets other than those of the Person merged into or consolidated with
the Issuer; (v) Liens on property existing at the time of acquisition
thereof by the Issuer or any Subsidiary of the Issuer, provided that such
Liens were in existence prior to the contemplation of such acquisition; (vi)
Liens to secure the performance of statutory obligations, surety or appeal
bonds, performance bonds or other obligations of a like nature incurred in
the ordinary course of business; (vii) Liens to secure Purchase Money
Indebtedness permitted by clause (vii) of Section 4.09(b) and clause (viii)
of Section 4.09(c) covering only the assets acquired with such Indebtedness;
(viii) Liens existing on the Issue Date; (ix) Liens for taxes, assessments
or governmental charges or claims that are not yet delinquent or that are
being contested in good faith by appropriate proceedings promptly instituted
and diligently concluded, provided that any reserve or other appropriate
provision as shall be required in conformity with GAAP shall have been made
therefor; (x) Liens incurred in the ordinary course of business of the
Issuer or any Subsidiary of the Issuer with respect to obligations that do
not exceed $2.0 million in the aggregate at any one time outstanding and
that (a) are not incurred in connection with the borrowing of money or the
obtaining of advances or credit (other than trade credit in the ordinary
course of business) and (b) do not in the aggregate materially detract from
the value of the property or materially impair the use thereof in the
operation of business by the Issuer or such Subsidiary; (xi) Liens on
Excluded Assets of Parent (a) to secure borrowings under the Cadiz Credit
Agreement or (b) to finance Qualified Projects; (xii) Liens on assets of
Unrestricted Subsidiaries that secure Non-Recourse Debt of Unrestricted
Subsidiaries; (xiii) Liens on Excluded Assets of Parent to secure Permitted
Refinancing Indebtedness; and (xiv) Liens or claims arising under PACA or
any successor statute thereto, to the extent that (A) such Liens cannot be
asserted against the Collateral or (B) the total amount of such outstanding
Liens does not exceed $7.0 million.
"PERMITTED REFINANCING INDEBTEDNESS" means any Indebtedness of
Parent, the Issuer or any of the Issuer's Restricted Subsidiaries issued in
exchange for, or the net proceeds of which are used to extend, refinance,
renew, replace, defease or refund other Indebtedness of Parent, the Issuer
or any of the Issuer's Restricted Subsidiaries; provided that: (i) the
principal amount (or accreted value, if applicable) of such Permitted
Refinancing Indebtedness does not exceed the principal amount of (or
accreted value, if applicable), plus accrued interest on, the Indebtedness
so extended, refinanced, renewed, replaced, defeased or refunded (plus the
amount of reasonable expenses incurred in connection therewith) outstanding
as of the date of such extension, refinancing, renewal, replacement,
defeasance or refunding; (ii) such Permitted Refinancing Indebtedness has
a final maturity date later than the final maturity date of, and has a
Weighted Average Life to Maturity equal to or greater than the Weighted
Average Life to Maturity of, the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded; (iii) if the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded is
subordinated in right of payment to the Notes, such Permitted Refinancing
Indebtedness has a final maturity date later than the final maturity date
of, and is subordinated in right of payment to, the Notes on terms at least
as favorable to the Holders of Notes as those contained in the documentation
governing the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded; and (iv) such Indebtedness is incurred either by
Parent, the Issuer or by the Restricted Subsidiary who is the obligor on the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded.
"PERSON" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated
organization or government or agency or political subdivision thereof
(including any subdivision or ongoing business of any such entity or
substantially all of the assets of any such entity, subdivision or
business).
"PURCHASE MONEY INDEBTEDNESS" of any Person means any obligations
of such Person to any seller or any other Person incurred or assumed to
finance the purchase, or the cost of construction or improvement, of real
or personal property to be used in the business of such Person or any of its
Subsidiaries in an amount that is not more than 100% of the cost, or fair
market value, as appropriate, of such property, and incurred to finance such
acquisition (excluding accounts payable to trade creditors incurred in the
ordinary course of business).
"QUALIFIED PROJECT" means a project by Parent (i) to develop its
rights to water that is financed solely through the issuance of Non-Recourse
Debt and Equity Interests of Parent (other than Disqualified Stock),
including the Cadiz Water Project, or (ii) an investment in agricultural
real property.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement, dated as of April 16, 1997, by and among Parent, the Issuer,
Smith Barney Inc. and the guarantors of the Issuer's obligations named on
the signature pages thereof, as such agreement may be amended, modified or
supplemented from time to time.
"RESPONSIBLE OFFICER," when used with respect to the Trustee, means
any officer within the Corporate Trust Administration of the Trustee (or any
successor group of the Trustee) or any other officer of the Trustee
customarily performing functions similar to those performed by any of the
above designated officers and also means, with respect to a particular
corporate trust matter, any other officer to whom such matter is referred
because of his knowledge of and familiarity with the particular subject.
"RESTRICTED INVESTMENT" means an Investment other than a Permitted
Investment.
"RESTRICTED SUBSIDIARY" of a Person means any Subsidiary of the
referent Person that is not an Unrestricted Subsidiary.
"REVOLVING CREDIT AGREEMENT" means that certain Credit Agreement,
to be entered into by and among the Issuer and Cooperatieve Centrale
Raffeissen-Boerenleenbank B.A. "Rabobank Nederland," New York Branch,
providing for revolving credit borrowings, including any related notes,
guarantees, collateral documents, instruments and agreements executed in
connection therewith, and in each case as amended, modified, renewed,
refunded, replaced or refinanced from time to time.
"REVOLVING CREDIT AGREEMENT COLLATERAL" means all of the Issuer's
cash and cash equivalents (other than funds which are to become Trust
Monies), accounts receivable, growing crops and inventory and all of the
cash and cash equivalents (other than funds which are to become Trust
Monies), accounts receivable, growing crops and inventory of the Issuer's
Subsidiaries.
"REVOLVING INDEBTEDNESS" means Indebtedness under the Revolving
Credit Agreement.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SECURITY AGREEMENT" means the Security Agreement, in the form of
Exhibit G, executed by the Issuer and each Subsidiary Guarantor in favor of
the Trustee for the benefit of the Trustee and the ratable benefit of the
Holders, as the same may be amended, supplemented or otherwise modified from
time to time.
"SIGNIFICANT SUBSIDIARY" means any Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation
S-X, promulgated pursuant to the Act, as such Regulation is in effect on the
date hereof.
"STATED MATURITY" means, with respect to any installment of interest
or principal on any series of Indebtedness, the date on which such payment
of interest or principal was scheduled to be paid in the original
documentation governing such Indebtedness, and shall not include any
contingent obligations to repay, redeem or repurchase any such interest or
principal prior to the date originally scheduled for the payment thereof.
"SUBSIDIARY" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total
voting power of shares of Capital Stock entitled (without regard to the
occurrence of any contingency) to vote in the election of directors,
managers or trustees thereof is at the time owned or controlled, directly
or indirectly, by such Person or one or more of the other Subsidiaries of
that Person (or a combination thereof) and (ii) any partnership (a) the sole
general partner or the managing general partner of which is such Person or
a Subsidiary of such Person or (b) the only general partners of which are
such Person or of one or more Subsidiaries of such Person (or any
combination thereof).
"SUBSIDIARY GUARANTEE" means the Guarantee of the Notes by each of
the Subsidiary Guarantors, in the form of the Guarantee attached to the form
of Note, Exhibit A hereto.
"SUBSIDIARY INTERCOMPANY NOTES" means the intercompany notes issued
by Subsidiaries of the Issuer in favor of the Issuer to evidence advances
by the Issuer, if any, in each case, in the form attached as Annex B hereto.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Sections
77aaa-77bbbb) as in effect on the date on which this Indenture is qualified
under the TIA, except as provided in Section 9.03 hereof.
"TRANSFER RESTRICTED SECURITIES" means securities that bear or are
required to bear the legend set forth in Section 2.06 hereof.
"TRUSTEE" means the party named as such above until a successor
replaces it in accordance with the applicable provisions of this Indenture
and thereafter means the successor serving hereunder.
"TRUST MONIES" means all cash and Cash Equivalents received by the
Trustee: (i) upon the release of Collateral from the Lien of this Indenture
and/or the Collateral Documents, including all Collateral Proceeds (and
amounts deemed, pursuant to this Indenture, to constitute Collateral
Proceeds) and all monies received in respect of the principal of all
purchase money, governmental and other obligations; (ii) as Net Insurance
Proceeds (other than any liability insurance proceeds payable to the Trustee
for any loss, liability or expense incurred by it); (iii) pursuant to the
Collateral Documents; (iv) as proceeds of any sale or other disposition of
all or any part of the Collateral by or on behalf of the Trustee or any
collection, recovery, receipt, appropriation or other realization of or from
all or any part of the Collateral pursuant to this Indenture or any of the
Collateral Documents or otherwise; (v) which constitute Collateral Proceeds
or are deemed pursuant to this Indenture to constitute Collateral Proceeds
from any transaction which results in a Subsidiary Guarantor being released
from its Subsidiary Guarantee pursuant to Section 12.04; or (vi) for
application as provided herein or any Collateral Document or which
disposition is not otherwise specifically provided for herein or in any
Collateral Document; provided, however, that Trust Monies shall in no event
include any property deposited with the Trustee for any redemption, legal
defeasance or covenant defeasance of Notes, for the satisfaction and
discharge of this Indenture or to pay the purchase price of Notes pursuant
to a Change of Control Offer.
"UNRESTRICTED SUBSIDIARY" means (i) any Subsidiary or any successor
to any of them that is designated by the Board of Directors as an
Unrestricted Subsidiary pursuant to a Board Resolution; but only to the
extent that such Subsidiary: (a) has no Indebtedness other than Non-Recourse
Debt; (b) is not party to any agreement, contract, arrangement or
understanding with Parent, the Issuer or any Restricted Subsidiary unless
the terms of any such agreement, contract, arrangement or understanding are
no less favorable to Parent, the Issuer or such Restricted Subsidiary than
those that might be obtained at the time from Persons who are not Affiliates
of Parent or the Issuer; (c) is a Person with respect to which none of
Parent, the Issuer or any Restricted Subsidiary has any direct or indirect
obligation (x) to subscribe for additional Equity Interests or (y) to
maintain or preserve such Person's financial condition or to cause such
Person to achieve any specified levels of operating results; (d) has not
guaranteed or otherwise directly or indirectly provided credit support for
any Indebtedness of Parent, the Issuer or any Restricted Subsidiary; and (e)
has at least one director on its board of directors that is not a director
or executive officer of Parent, the Issuer or any Restricted Subsidiary and
has at least one executive officer that is not a director or executive
officer of Parent, the Issuer or any Restricted Subsidiary. Any such
designation by the Board of Directors shall be evidenced to the Trustee by
filing with the Trustee a certified copy of the Board Resolution giving
effect to such designation and an Officers' Certificate certifying that such
designation complied with the foregoing conditions and was permitted by
Section 4.07. If, at any time, any Unrestricted Subsidiary would fail to
meet the foregoing requirements as an Unrestricted Subsidiary, it shall
thereafter cease to be an Unrestricted Subsidiary for purposes of this
Indenture and any Indebtedness of such Subsidiary shall be deemed to be
incurred by a Restricted Subsidiary of Parent or the Issuer, as applicable,
as of such date (and, if such Indebtedness is not permitted to be incurred
as of such date under Section 4.09, Parent or the Issuer shall be in default
of such covenant). The Board of Directors of Parent or the Issuer may at
any time designate any Unrestricted Subsidiary to be a Restricted
Subsidiary; provided that such designation shall be deemed to be an
incurrence of Indebtedness by a Restricted Subsidiary of Parent or the
Issuer of any outstanding Indebtedness of such Unrestricted Subsidiary and
such designation shall only be permitted if (i) such Indebtedness is
permitted under Section 4.09, calculated on a pro forma basis as if such
designation had occurred at the beginning of the four-quarter reference
period, and (ii) no Default or Event of Default would be in existence
following such designation.
"VOTING STOCK" of any Person as of any date means the Capital Stock
of such Person that is at the time entitled to vote in the election of the
Board of Directors of such Person.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (i) the
sum of the products obtained by multiplying (a) the amount of each then
remaining installment, sinking fund, serial maturity or other required
payments of principal, including payment at final maturity, in respect
thereof, by (b) the number of years (calculated to the nearest one-twelfth)
that will elapse between such date and the making of such payment, by (ii)
the then outstanding principal amount of such Indebtedness.
"WHOLLY OWNED RESTRICTED SUBSIDIARY" of any Person means a
Restricted Subsidiary of such Person all of the outstanding Capital Stock
or other ownership interests of which (other than directors' qualifying
shares) shall at the time be owned by such Person or by one or more Wholly
Owned Restricted Subsidiaries of such Person and one or more Wholly Owned
Restricted Subsidiaries of such Person.
"ZENITH COLLATERAL" means an undivided one-half interest 4,222 acres
of farm property located near Blythe, California, in which a senior security
interest has been granted by the Issuer to Zenith Insurance Company as
security for certain Existing Indebtedness.
Section 1.02. Other Definitions.
- ---------------------------------
Defined in
Term Section
"Affiliate Transaction" . . . . . . . . . . . . . 4.11
"Asset Sale Offer". . . . . . . . . . . . . . . . 3.09
"Available Amount". . . . . . . . . . . . . . . . 4.10
"Benefitted Party". . . . . . . . . . . . . . . . 12.01
"Change of Control Offer" . . . . . . . . . . . . 4.15
"Change of Control Offer Period". . . . . . . . . 4.15
"Change of Control Payment" . . . . . . . . . . . 4.15
"Change of Control Purchase Date" . . . . . . . . 4.15
"Collateral Proceeds" . . . . . . . . . . . . . . 4.10
"Company Order" . . . . . . . . . . . . . . . . . 10.05
"Co-Trustee" . . . . . . . . . . . . . . . . . . 7.13
"Covenant Defeasance" . . . . . . . . . . . . . . 8.03
"Custodian" . . . . . . . . . . . . . . . . . . 6.01
"DTC" . . . . . . . . . . . . . . . . . . . . . . 2.03
"Event of Default". . . . . . . . . . . . . . . . 6.01
"Excess Proceeds" . . . . . . . . . . . . . . . . 4.10
"incur" . . . . . . . . . . . . . . . . . . . . . 4.09
"Legal Defeasance" . . . . . . . . . . . . . . . 8.02
"Non-Collateral Proceeds" . . . . . . . . . . . . 4.10
"Offer Amount". . . . . . . . . . . . . . . . . . 3.09
"Offer Period". . . . . . . . . . . . . . . . . . 3.09
"Paying Agent". . . . . . . . . . . . . . . . . . 2.03
"Purchase Date" . . . . . . . . . . . . . . . . . 3.09
"QIB" . . . . . . . . . . . . . . . . . . . . . . 2.06
"Registrar" . . . . . . . . . . . . . . . . . . . 2.03
"Released Interests". . . . . . . . . . . . . . . 10.05
"Released Property" . . . . . . . . . . . . . . . 10.05
"Released Trust Monies" . . . . . . . . . . . . . 11.04
"Replacement Assets". . . . . . . . . . . . . . . 4.10
"Restricted Payments" . . . . . . . . . . . . . . 4.07
"Surviving Entity". . . . . . . . . . . . . . . . 5.01
"Title Policy". . . . . . . . . . . . . . . . . . 10.02
"Transfer Restricted Security". . . . . . . . . . 2.06
"Trust Monies Release Notice" . . . . . . . . . . 11.04
"Valuation Date". . . . . . . . . . . . . . . . . 10.05
Section 1.03. Incorporation by Reference of Trust Indenture Act.
--------------------------------------------------
Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following
meanings:
"Indenture securities" means the Notes;
"indenture security Holder" means a Holder of a Note;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee;
"obligor" on the Notes means the Issuer and any successor obligor
upon the Notes.
All other terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by SEC rule under the
TIA have the meanings so assigned to them.
Section 1.04. Rules of Construction.
----------------------------
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and in the
plural include the singular;
(5) provisions apply to successive events and transactions;
and
(6) references to sections of or rules under the Securities
Act shall be deemed to include substitute, replacement of successor
sections or rules adopted by the SEC from time to time.
ARTICLE 2
THE NOTES
Section 2.01. Form and Dating.
----------------
The Notes and the Trustee's certificate of authentication shall be
substantially in the form of Exhibit A hereto. The Notes may have
notations, legends or endorsements required by law, stock exchange rule or
usage. Each Note shall be dated the date of its authentication. The Notes
shall be in denominations of $1,000 and integral multiples thereof.
The terms and provisions contained in the Notes shall constitute,
and are hereby expressly made, a part of this Indenture and the Issuer and
the Trustee, by their execution and delivery of this Indenture, expressly
agree to such terms and provisions and to be bound thereby.
Notes issued in global form shall be substantially in the form of
Exhibit A attached hereto (including the text referred to in footnotes 1 and
2 thereto). Notes issued in definitive form shall be substantially in the
form of Exhibit A attached hereto (but without including the text referred
to in footnotes 1 and 2 thereto). Each Global Note shall represent such of
the outstanding Notes as shall be specified therein and each shall provide
that it shall represent the aggregate amount of outstanding Notes from time
to time endorsed thereon and that the aggregate amount of outstanding Notes
represented thereby may from time to time be reduced or increased, as
appropriate, to reflect exchanges and redemptions. Any endorsement of a
Global Note to reflect the amount of any increase or decrease in the amount
of outstanding Notes represented thereby shall be made by the Trustee or the
Note Custodian, at the direction of the Trustee, in accordance with
instructions given by the Holder thereof as required by Section 2.06 hereof.
Section 2.02. Execution and Authentication.
-----------------------------
Two Officers shall sign the Notes for the Issuer by manual or
facsimile signature. The Issuer's seal shall be reproduced on the Notes and
may be in facsimile form.
If an Officer whose signature is on a Note no longer holds that
office at the time a Note is authenticated, the Note shall nevertheless be
valid.
A Note shall not be valid until authenticated by the manual
signature of the Trustee. The signature shall be conclusive evidence that
the Note has been authenticated under this Indenture.
The Trustee shall, upon a written order of the Issuer signed by two
Officers, authenticate Notes for original issue up to the aggregate
principal amount stated in paragraph 4 of the Notes. The aggregate
principal amount of Notes outstanding at any time may not exceed such amount
except as provided in Section 2.07 hereof.
The Trustee may appoint an authenticating agent acceptable to the
Issuer to authenticate Notes. An authenticating agent may authenticate
Notes whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as an Agent to deal with the Issuer
or an Affiliate of the Issuer.
Section 2.03. Registrar and Paying Agent.
-------------------------
The Issuer shall maintain an office or agency where Notes may be
presented for registration of transfer or for exchange ("Registrar") and an
office or agency where Notes may be presented for payment ("Paying Agent").
The Registrar shall keep a register of the Notes and of their transfer and
exchange. The Issuer may appoint one or more co-registrars and one or more
additional paying agents. The term "Registrar" includes any co-registrar
and the term "Paying Agent" includes any additional paying agent. The
Issuer may change any Paying Agent or Registrar without notice to any
Holder. The Issuer shall notify the Trustee in writing of the name and
address of any Agent not a party to this Indenture. If the Issuer fails to
appoint or maintain another entity as Registrar or Paying Agent, the Trustee
shall act as such. The Issuer or any of its Subsidiaries may act as Paying
Agent or Registrar.
The Issuer initially appoints The Depository Trust Company ("DTC")
to act as Depository with respect to the Global Notes.
The Issuer initially appoints the Trustee to act as the Registrar
and Paying Agent and to act as Note Custodian with respect to the Global
Notes.
Section 2.04. Paying Agent to Hold Money in Trust.
-----------------------------------
The Issuer shall require each Paying Agent other than the Trustee
to agree in writing that the Paying Agent will hold in trust for the benefit
of Holders or the Trustee all money held by the Paying Agent for the payment
of principal, premium or Liquidated Damages, if any, or interest on the
Notes, and will notify the Trustee of any default by the Issuer in making
any such payment. While any such default continues, the Trustee may require
a Paying Agent to pay all money held by it to the Trustee. The Issuer at
any time may require a Paying Agent to pay all money held by it to the
Trustee. Upon payment over to the Trustee, the Paying Agent (if other than
the Issuer or a Subsidiary) shall have no further liability for the money.
If the Issuer or a Subsidiary acts as Paying Agent, it shall segregate and
hold in a separate trust fund for the benefit of the Holders all money held
by it as Paying Agent. Upon any bankruptcy or reorganization proceedings
relating to the Issuer, the Trustee shall serve as Paying Agent for the
Notes.
Section 2.05. Holder Lists.
-------------
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses
of all Holders and shall otherwise comply with TIA Section 312(a). If the
Trustee is not the Registrar, the Issuer shall furnish to the Trustee at
least seven Business Days before each interest payment date and at such
other times as the Trustee may request in writing, a list in such form and
as of such date as the Trustee may reasonably require of the names and
addresses of the Holders of Notes and the Issuer shall otherwise comply
with TIA Section 312(a).
Section 2.06. Transfer and Exchange.
----------------------
(a) TRANSFER AND EXCHANGE OF GLOBAL NOTES. The transfer and
exchange of Global Notes or beneficial interests therein shall be effected
through the Depository, in accordance with this Indenture and the procedures
of the Depository therefor, which shall include restrictions on transfer
comparable to those set forth herein to the extent required by the
Securities Act. Beneficial interests in a Global Note may be transferred
to Persons who take delivery thereof in the form of a beneficial interest
in the same Global Note in accordance with the transfer restrictions set
forth in the legend in subsection (g) of this Section 2.06.
(b) TRANSFER AND EXCHANGE OF CERTIFICATED NOTES. Holders of
Certificated Notes may offer, resell, pledge or otherwise transfer such
Notes only pursuant to an effective registration statement under the
Securities Act, inside the United States to a "qualified institutional
buyer," as such term is defined in Rule 144A under the Securities Act (a
"QIB") in a transaction meeting the requirements of Rule 144A, in a
transaction meeting the requirements of Rule 144 under the Securities Act,
outside the United States in a transaction meeting the requirements of Rule
904 under the Securities Act or to the Issuer, in each case in compliance
with any applicable securities laws of any State of the United States or any
other applicable jurisdiction.
When Certificated Notes are presented by a Holder to the Registrar
with a written request:
(x) to register the transfer of the Certificated Notes; or
(y) to exchange such Certificated Notes for an equal principal
amount of Certificated Notes of other authorized denominations,
the Registrar shall register the transfer or make the exchange as requested;
provided, however, that the Certificated Notes presented or surrendered for
register of transfer or exchange:
(i) shall be duly endorsed or accompanied by a written
instruction of transfer in form satisfactory to the Registrar duly
executed by such Holder or by his attorney, duly authorized in
writing; and
(ii) in the case of a Certificated Note that is a Transfer
Restricted Security, such request shall be accompanied by the
following additional information and documents, as applicable:
(A) if such Transfer Restricted Security is being
delivered to the Registrar by a Holder for registration in the
name of such Holder, without transfer, or such Transfer
Restricted Security is being transferred to the Issuer, a
certification to that effect from such Holder (in substantially
the form of Exhibit B-1 hereto);
(B) if such Transfer Restricted Security is being
transferred to a QIB in accordance with Rule 144A under the
Securities Act or pursuant to an exemption from registration in
accordance with Rule 144 under the Securities Act or pursuant to
an effective registration statement under the Securities Act, a
certification to that effect from such Holder (in substantially
the form of Exhibit B-1 hereto); or
(C) if such Transfer Restricted Security is being
transferred in reliance on any other exemption from the
registration requirements of the Securities Act (including Rule
904 thereunder), a certification to that effect from such Holder
(in substantially the form of Exhibit B-1 hereto) and an Opinion
of Counsel from such Holder or the transferee reasonably
acceptable to the Issuer and to the Registrar to the effect that
such transfer is in compliance with the Securities Act.
(c) TRANSFER OF A BENEFICIAL INTEREST IN A GLOBAL NOTE FOR A
CERTIFICATED NOTE
(i) Any Person having a beneficial interest in a Global Note
may upon request, subject to the procedures set forth herein,
exchange such beneficial interest for a Certificated Note. Upon
receipt by the Trustee of written instructions or such other form
of instructions as is customary for the Depository, from the
Depository or its nominee on behalf of any Person having a
beneficial interest in a Global Note, and, in the case of a Transfer
Restricted Security, the following additional information and
documents (all of which may be submitted by facsimile):
(A) if such beneficial interest is being transferred to
the Person designated by the Depository as being the beneficial
owner, a certification to that effect from such Person (in
substantially the form of Exhibit B-2 hereto);
(B) if such beneficial interest is being transferred to a
QIB in accordance with Rule 144A under the Securities Act or
pursuant to an exemption from registration in accordance with
Rule 144 under the Securities Act or pursuant to an effective
registration statement under the Securities Act, a certification
to that effect from the transferor (in substantially the form of
Exhibit B-2 hereto); or
(C) if such beneficial interest is being transferred in
reliance on any other exemption from the registration
requirements of the Securities Act (including Rule 904
thereunder), a certification to that effect from the transferor
(in substantially the form of Exhibit B-2 hereto) and an Opinion
of Counsel from the transferee or the transferor reasonably
acceptable to the Issuer and to the Registrar to the effect that
such transfer is in compliance with the Securities Act,
in which case the Trustee or the Note Custodian, at the direction of the
Trustee, shall, in accordance with the standing instructions and procedures
existing between the Depository and the Note Custodian, cause the aggregate
principal amount of Global Notes to be reduced accordingly and, following
such reduction, the Issuer shall execute and the Trustee shall authenticate
and deliver to the transferee a Certificated Note in the appropriate
principal amount.
(ii) Certificated Notes issued in exchange for a beneficial
interest in a Global Note pursuant to this Section 2.06(c) shall be
registered in such names and in such authorized denominations as the
Depository, pursuant to instructions from its direct or indirect
participants or otherwise, shall instruct the Trustee. The Trustee
shall deliver such Certificated Notes to the Persons in whose names
such Notes are so registered.
(d) RESTRICTIONS ON TRANSFER AND EXCHANGE OF GLOBAL NOTES.
Notwithstanding any other provision of this Indenture (other than the
provisions set forth in subsection (f) of this Section 2.06), a Global Note
may not be transferred as a whole except by the Depository to a nominee of
the Depository, or by a nominee of the Depository to the Depository or
another nominee of the Depository, or by the Depository or any such nominee
to a successor Depository or a nominee of such successor Depository.
(e) TRANSFER AND EXCHANGE OF A CERTIFICATED NOTE FOR A BENEFICIAL
INTEREST IN A GLOBAL NOTE. Holders of Certificated Notes may offer, resell,
pledge or otherwise transfer such Notes only pursuant to an effective
registration statement under the Securities Act, inside the United States
to a QIB in a transaction meeting the requirements of Rule 144A, in a
transaction meeting the requirements of Rule 144 under the Securities Act,
outside the United States in a transaction meeting the requirements of Rule
904 under the Securities Act or to the Issuer, in each case in compliance
with any applicable securities laws of any State of the United States or any
other applicable jurisdiction.
A Certificated Note may not be exchanged for a beneficial interest
in a Global Note except upon satisfaction of the requirements set forth
below. Upon receipt by the Trustee of a Certificated Note:
(i) duly endorsed or accompanied by a written instruction of
transfer in form satisfactory to the Trustee duly executed by such
Holder or by his attorney, duly authorized in writing, which
instructions, if applicable, shall direct the Trustee, (A) to cancel
any Certificated Note being exchanged for a beneficial interest in
a Global Note in accordance with Section 2.11 hereof, and (B) to
make, or to direct the Note Custodian to make, an endorsement on the
appropriate Global Note to reflect an increase in the aggregate
principal amount of the Notes represented by such Global Note; and
(ii) accompanied by the following additional information and
documents, if the Certificate Note is a Transfer Restricted
Security: if such Certificated Note is being transferred to a QIB
in accordance with Rule 144A, pursuant to Rule 144 under the
Securities Act or pursuant to an exemption from registration in
accordance with Rule 904 under the Securities Act or pursuant to an
effective registration statement under the Securities Act, a
certification to that effect from such Holder (in substantially the
form of Exhibit B-3 hereto).
The Trustee shall cancel such Certificated Note in accordance with Section
2.11 hereof and cause, or direct the Note Custodian to cause, in accordance
with the standing instructions and procedures existing between the
Depository and the Note Custodian, the aggregate principal amount of the
Global Notes to be increased accordingly.
(f) AUTHENTICATION OF CERTIFICATED NOTES IN ABSENCE OF
DEPOSITORY. If at any time:
(i) the Depository for the Notes notifies the Issuer that the
Depository is unwilling or unable to continue as Depository for the
Global Notes and a successor Depository for the Global Notes is not
appointed by the Issuer within 90 days after delivery of such
notice; or
(ii) the Issuer delivers to the Trustee an Officers'
Certificate or an order signed by two Officers of the Issuer
notifying the Trustee that it elects to cause the issuance of
Certificated Notes under this Indenture,
then the Issuer shall execute, and the Trustee shall, upon receipt of an
Authentication Order in accordance with Section 2.02 hereof, authenticate
and deliver, Certificated Notes in an aggregate principal amount equal to
the principal amount of the Global Notes in exchange for such Global Notes.
(g) LEGENDS
(i) Except as permitted by the following paragraphs (ii),
(iii) and (iv), each Note certificate evidencing Global Notes and
Certificated Notes (and all Notes issued in exchange therefor or
substitution thereof) shall bear a legend in substantially the
following form (each a "Transfer Restricted Security"):
"THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS
ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION
UNDER SECTION 5 OF THE UNITED STATES SECURITIES ACT OF 1933
(THE "SECURITIES ACT"), AND THE SECURITY EVIDENCED HEREBY
MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION
THEREFROM. EACH PURCHASER OF THIS SECURITY IS HEREBY
NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION
FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT
PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THE
SECURITY EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE
ISSUER THAT (A) SUCH SECURITY MAY BE RESOLD, PLEDGED OR
OTHERWISE TRANSFERRED, ONLY (1)(a) TO A PERSON WHO THE
SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL
BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN
A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (b) IN
A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER
THE SECURITIES ACT, (c) OUTSIDE THE UNITED STATES TO A
FOREIGN PERSON IN A TRANSACTION MEETING THE REQUIREMENTS OF
RULE 904 UNDER THE SECURITIES ACT OR (d) IN ACCORDANCE WITH
ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL IF THE
ISSUER SO REQUESTS), (2) TO THE ISSUER OR (3) PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN
ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE
OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION
AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS
REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THE SECURITY
EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET FORTH IN
(A) ABOVE."
(ii) Upon any sale or transfer of a Transfer Restricted
Security (including any Transfer Restricted Security represented by
a Global Note) pursuant to Rule 144 under the Securities Act or
pursuant to an effective registration statement under the Securities
Act:
(A) in the case of any Transfer Restricted Security that
is a Certificated Note, the Registrar shall permit the Holder
thereof to exchange such Transfer Restricted Security for a
Certificated Note that does not bear the legend set forth in (i)
above and rescind any restriction on the transfer of such
Transfer Restricted Security upon receipt of a certification
from the transferring Holder substantially in the form of
Exhibit B-1 hereto; and
(B) in the case of any Transfer Restricted Security
represented by a Global Note, such Transfer Restricted Security
shall not be required to bear the legend set forth in (i) above,
but shall continue to be subject to the provisions of Section
2.06(a) and (b) hereof; provided, however, that with respect to
any request for an exchange of a Transfer Restricted Security
that is represented by a Global Note for a Certificated Note
that does not bear the legend set forth in (i) above, which
request is made in reliance upon Rule 144, the Holder thereof
shall certify in writing to the Registrar that such request is
being made pursuant to Rule 144 (such certification to be
substantially in the form of Exhibit B-2 hereto).
(iii) Upon any sale or transfer of a Transfer Restricted
Security (including any Transfer Restricted Security represented by
a Global Note) in reliance on any exemption from the registration
requirements of the Securities Act (other than exemptions pursuant
to Rule 144A or Rule 144 under the Securities Act) in which the
Holder or the transferee provides an Opinion of Counsel to the
Issuer and the Registrar in form and substance reasonably acceptable
to the Issuer and the Registrar (which Opinion of Counsel shall also
state that the transfer restrictions contained in the legend are no
longer applicable):
(A) in the case of any Transfer Restricted Security that
is a Certificated Note, the Registrar shall permit the Holder
thereof to exchange such Transfer Restricted Security for a
Certificated Note that does not bear the legend set forth in (i)
above and rescind any restriction on the transfer of such
Transfer Restricted Security; and
(B) in the case of any Transfer Restricted Security
represented by a Global Note, such Transfer Restricted Security
shall not be required to bear the legend set forth in (i) above,
but shall continue to be subject to the provisions of Section
2.06(a) and (b) hereof.
(iv) Notwithstanding the foregoing, upon consummation of the
Exchange Offer in accordance with the Registration Rights Agreement,
the Issuer shall issue and, upon receipt of an Authentication Order
in accordance with Section 2.02 hereof, the Trustee shall
authenticate Series B Notes in exchange for Series A Notes accepted
for exchange in the Exchange Offer, which Series B Notes shall not
bear the legend set forth in (i) above, and the Registrar shall
rescind any restriction on the transfer of such Series B Notes, in
each case unless the Holder of such Series A Notes is either (A) a
broker-dealer, (B) a Person participating in the distribution of the
Series A Notes or (C) a Person who is an affiliate (as defined in
Rule 144A) of the Issuer.
(h) CANCELLATION AND/OR ADJUSTMENT OF GLOBAL NOTES. At such time
as all beneficial interests in Global Notes have been exchanged for
Certificated Notes, redeemed, repurchased or cancelled, all Global Notes
shall be returned to or retained and cancelled by the Trustee in accordance
with Section 2.11 hereof. At any time prior to such cancellation, if any
beneficial interest in a Global Note is exchanged for an interest in another
Global Note or for Certificated Notes, redeemed, repurchased or cancelled,
the principal amount of Notes represented by such Global Note shall be
reduced accordingly and an endorsement shall be made on such Global Note,
by the Trustee or the Note Custodian, at the direction of the Trustee, to
reflect such reduction.
(i) GENERAL PROVISIONS RELATING TO TRANSFERS AND EXCHANGES
(i) To permit registrations of transfers and exchanges, the
Issuer shall execute and the Trustee shall authenticate Certificated
Notes and Global Notes at the Registrar's request.
(ii) No service charge shall be made to a Holder for any
registration of transfer or exchange, but the Issuer may require
payment of a sum sufficient to cover any transfer tax or similar
governmental charge payable in connection therewith (other than any
such transfer taxes or similar governmental charge payable upon
exchange or transfer pursuant to Sections 3.09, 4.10, 4.15 and 9.05
hereof).
(iii) The Registrar shall not be required to register the
transfer of or exchange any Note selected for redemption in whole
or in part, except the unredeemed portion of any Note being redeemed
in part.
(iv) All Certificated Notes and Global Notes issued upon any
registration of transfer or exchange of Certificated Notes or Global
Notes shall be the valid obligations of the Issuer, evidencing the
same debt, and entitled to the same benefits under this Indenture,
as the Certificated Notes or Global Notes surrendered upon such
registration of transfer or exchange.
(v) The Issuer shall not be required:
(A) to issue, to register the transfer of or to exchange
Notes during a period beginning at the opening of business 15
days before the day of any selection of Notes for redemption
under Section 3.02 hereof and ending at the close of business on
the day of selection; or
(B) to register the transfer of or to exchange any Note so
selected for redemption in whole or in part, except the
unredeemed portion of any Note being redeemed in part; or
(C) to register the transfer of or to exchange a Note
between a record date and the next succeeding interest payment
date.
(vi) Prior to due presentment for the registration of a
transfer of any Note, the Trustee, any Agent and the Issuer may deem
and treat the Person in whose name any Note is registered as the
absolute owner of such Note for the purpose of receiving payment of
principal of and interest and Liquidated Damages, if any, on such
Notes, and neither the Trustee, any Agent nor the Issuer shall be
affected by notice to the contrary.
(vii) The Trustee shall authenticate Certificated Notes and
Global Notes in accordance with the provisions of Section 2.02
hereof.
The Registrar may rely on information set forth in a certificate
substantially in the form of Exhibit B-1, B-2 or B-3 hereto, and other
certificates and opinions received pursuant to this Section 2.06 and, in the
absence of receipt of such a certificate or opinion, shall not be deemed to
have knowledge of a transfer of an interest in a Global Note absent actual
knowledge of such transfer.
Section 2.07. Replacement Notes.
------------------
If any mutilated Note is surrendered to the Trustee, or the Issuer
and the Trustee receives evidence to its satisfaction of the destruction,
loss or theft of any Note, the Issuer shall issue and the Trustee, upon the
written order of the Issuer signed by two Officers of the Issuer, shall
authenticate a replacement Note if the Trustee's requirements are met. If
required by the Trustee or the Issuer, an indemnity bond must be supplied
by the Holder that is sufficient in the judgment of the Trustee and the
Issuer to protect the Issuer, the Trustee, any Agent and any authenticating
agent from any loss that any of them may suffer if a Note is replaced. The
Issuer may charge for its expenses in replacing a Note.
Every replacement Note is an additional obligation of the Issuer and
shall be entitled to all of the benefits of this Indenture equally and
proportionately with all other Notes duly issued hereunder.
Section 2.08. Outstanding Notes.
-------------------
The Notes outstanding at any time are all the Notes authenticated
by the Trustee except for those cancelled by it, those delivered to it for
cancellation, those reductions in the interest in a Global Note effected by
the Trustee in accordance with the provisions hereof, and those described
in this Section as not outstanding. Except as set forth in Section 2.09
hereof, a Note does not cease to be outstanding because the Issuer or an
Affiliate of the Issuer holds the Note.
If a Note is replaced pursuant to Section 2.07 hereof, it ceases to
be outstanding unless the Trustee receives proof satisfactory to it that the
replaced Note is held by a bona fide purchaser.
If the principal amount of any Note is considered paid under Section
4.01 hereof, it ceases to be outstanding and interest on it ceases to
accrue.
If the Paying Agent (other than the Issuer, a Subsidiary or an
Affiliate of any thereof) holds, on a redemption date or maturity date,
money sufficient to pay Notes payable on that date, then on and after that
date such Notes shall be deemed to be no longer outstanding and shall cease
to accrue interest.
Section 2.09. Treasury Notes.
---------------
In determining whether the Holders of the required principal amount
of Notes have concurred in any direction, waiver or consent, Notes owned by
the Issuer, or by any Person directly or indirectly controlling or
controlled by or under direct or indirect common control with the Issuer,
shall be considered as though not outstanding, except that for the purposes
of determining whether the Trustee shall be protected in relying on any such
direction, waiver or consent, only Notes that a Trustee knows are so owned
shall be so disregarded.
Section 2.10. Temporary Notes.
-----------------
Until definitive Notes are ready for delivery, the Issuer may
prepare and the Trustee shall authenticate temporary Notes upon a written
order of the Issuer signed by two Officers of the Issuer. Temporary Notes
shall be substantially in the form of definitive Notes but may have
variations that the Issuer considers appropriate for temporary Notes and as
shall be reasonably acceptable to the Trustee. Without unreasonable delay,
the Issuer shall prepare and the Trustee shall authenticate definitive Notes
in exchange for temporary Notes.
Holders of temporary Notes shall be entitled to all of the benefits
of this Indenture.
Section 2.11. Cancellation.
-------------
The Issuer at any time may deliver Notes to the Trustee for
cancellation. The Registrar and Paying Agent shall forward to the Trustee
any Notes surrendered to them for registration of transfer, exchange or
payment. The Trustee and no one else shall cancel all Notes surrendered for
registration of transfer, exchange, payment, replacement or cancellation and
shall destroy cancelled Notes (subject to the record retention requirement
of the Exchange Act). Certification of the destruction of all cancelled
Notes shall be delivered to the Issuer. The Issuer may not issue new Notes
to replace Notes that it has paid or that have been delivered to the Trustee
for cancellation.
Section 2.12. Defaulted Interest.
------------------
If the Issuer defaults in a payment of interest on the Notes, it
shall pay the defaulted interest in any lawful manner plus, to the extent
lawful, interest payable on the defaulted interest, to the Persons who are
Holders on a subsequent special record date, in each case at the rate
provided in the Notes and in Section 4.01 hereof. The Issuer shall notify
the Trustee in writing of the amount of defaulted interest proposed to be
paid on each Note and the date of the proposed payment. The Issuer shall
fix or cause to be fixed each such special record date and payment date;
provided that no such special record date shall be less than 10 days prior
to the related payment date for such defaulted interest. At least 15 days
before the special record date, the Issuer (or, upon the written request of
the Issuer, the Trustee in the name and at the expense of the Issuer) shall
mail or cause to be mailed to Holders a notice that states the special
record date, the related payment date and the amount of such interest to be
paid.
ARTICLE 3
REDEMPTION AND PREPAYMENT
Section 3.01. Notices to Trustee.
-------------------
If the Issuer elects to redeem Notes pursuant to the optional
redemption provisions of Section 3.07 hereof, it shall furnish to the
Trustee, at least 30 days but not more than 60 days before a redemption
date, an Officers' Certificate setting forth (i) the clause of this
Indenture pursuant to which the redemption shall occur, (ii) the redemption
date, (iii) the principal amount of Notes to be redeemed and (iv) the
redemption price.
Section 3.02. Selection of Notes to Be Redeemed.
---------------------------------
If less than all of the Notes are to be redeemed at any time, the
Trustee shall select the Notes to be redeemed among the Holders of the Notes
in compliance with the requirements of the principal national securities
exchange, if any, on which the Notes are listed or, if the Notes are not so
listed, on a pro rata basis, by lot or in accordance with any other method
the Trustee considers fair and appropriate. In the event of partial
redemption by lot, the particular Notes to be redeemed shall be selected,
unless otherwise provided herein, not less than 30 nor more than 60 days
prior to the redemption date by the Trustee from the outstanding Notes not
previously called for redemption.
The Trustee shall promptly notify the Issuer in writing of the Notes
selected for redemption and, in the case of any Note selected for partial
redemption, the principal amount thereof to be redeemed. Notes and portions
of Notes selected shall be in amounts of $1,000 or whole multiples of
$1,000; except that if all of the Notes of a Holder are to be redeemed, the
entire outstanding amount of Notes held by such Holder, even if not a
multiple of $1,000, shall be redeemed. Except as provided in the preceding
sentence, provisions of this Indenture that apply to Notes called for
redemption also apply to portions of Notes called for redemption.
Section 3.03. Notice of Redemption.
--------------------
Subject to the provisions of Section 3.09 hereof, at least 30 days
but not more than 60 days before a redemption date, the Issuer shall mail
or cause to be mailed, by first class mail, a notice of redemption to each
Holder whose Notes are to be redeemed at its registered address.
The notice shall identify the Notes to be redeemed and shall state:
(a) the redemption date;
(b) the redemption price;
(c) if any Note is being redeemed in part, the portion of the
principal amount of such Note to be redeemed and that, after the
redemption date upon surrender of such Note, a new Note or Notes in
principal amount equal to the unredeemed portion shall be issued
upon cancellation of the original Note;
(d) the name and address of the Paying Agent;
(e) that Notes called for redemption must be surrendered to
the Paying Agent to collect the redemption price;
(f) that, unless the Issuer defaults in making such redemption
payment, interest on Notes called for redemption ceases to accrue
on and after the redemption date;
(g) the paragraph of the Notes and/or Section of this
Indenture pursuant to which the Notes called for redemption are
being redeemed; and
(h) that no representation is made as to the correctness or
accuracy of the CUSIP number, if any, listed in such notice or
printed on the Notes.
At the Issuer's request, the Trustee shall give the notice of
redemption in the Issuer's name and at its expense; provided, however, that
the Issuer shall have delivered to the Trustee, at least 45 days prior to
the redemption date, an Officers' Certificate requesting that the Trustee
give such notice and setting forth the information to be stated in such
notice as provided in the preceding paragraph.
Section 3.04. Effect of Notice of Redemption.
------------------------------
Once notice of redemption is mailed in accordance with Section 3.03
hereof, Notes called for redemption become irrevocably due and payable on
the redemption date at the redemption price. A notice of redemption may not
be conditional.
Section 3.05. Deposit of Redemption Price.
---------------------------
One Business Day prior to the redemption date, the Issuer shall
deposit with the Trustee or with the Paying Agent money sufficient to pay
the redemption price of and accrued interest and Liquidated Damages, if any,
on all Notes to be redeemed on that date. The Trustee or the Paying Agent
shall promptly return to the Issuer any money deposited with the Trustee or
the Paying Agent, respectively, by the Issuer in excess of the amounts
necessary to pay the redemption price of, and accrued interest on, all Notes
to be redeemed.
If the Issuer complies with the provisions of the preceding
paragraph, on and after the redemption date, interest shall cease to accrue
on the Notes or the portions of Notes called for redemption. If a Note is
redeemed on or after an interest record date but on or prior to the related
interest payment date, then any accrued and unpaid interest shall be paid
to the Person in whose name such Note was registered at the close of
business on such record date. If any Note called for redemption shall not
be so paid upon surrender for redemption because of the failure of the
Issuer to comply with the preceding paragraph, interest shall be paid on the
unpaid principal, from the redemption date until such principal is paid, and
to the extent lawful on any interest not paid on such unpaid principal, in
each case at the rate provided in the Notes and in Section 4.01 hereof.
Section 3.06. Notes Redeemed in Part.
----------------------
Upon surrender of a Note that is redeemed in part, the Issuer shall
issue and, upon the Issuer's written request, the Trustee shall authenticate
for the Holder at the expense of the Issuer a new Note equal in principal
amount to the unredeemed portion of the Note surrendered.
Section 3.07. Optional Redemption.
-------------------
(a) The Notes will not be redeemable at the Issuer's option prior
to April 15, 2001. Thereafter, the Notes will be subject to redemption at
any time at the option of the Issuer, in whole or in part, upon not less
than 30 nor more than 60 days' notice, at the redemption prices (expressed
as percentages of principal amount) set forth below plus accrued and unpaid
interest and Liquidated Damages thereon to the applicable redemption date,
if redeemed during the twelve-month period beginning on April 15 of the
years indicated below:
YEAR PERCENTAGE
- ------- -----------
2001 . . . . . . . . . . . . . . . . . . . . . . . . . . 105.625%
2002 . . . . . . . . . . . . . . . . . . . . . . . . . . 102.813%
2003 and thereafter. . . . . . . . . . . . . . . . . . . 100.000%
(b) Any redemption pursuant to this Section 3.07 shall be made
pursuant to the provisions of Section 3.01 through 3.06 hereof.
Section 3.08. Mandatory Redemption.
----------------------
Except as set forth under Sections 4.10 and 4.15 hereof, the Issuer
shall not be required to make mandatory redemption payments with respect to
the Notes.
Section 3.09. Offer to Purchase by Application of Excess Proceeds.
----------------------------------------------------
In the event that, pursuant to Section 4.10 hereof, the Issuer shall
be required or permitted to commence an offer to all Holders to purchase
Notes (an "Asset Sale Offer"), it shall follow the procedures specified
below.
The Asset Sale Offer shall remain open for a period of 20 Business Days
following its commencement and no longer, except to the extent that a longer
period is required by applicable law (the "Offer Period"). No later than
five Business Days after the termination of the Offer Period (the "Purchase
Date"), the Issuer shall purchase the principal amount of Notes required to
be purchased pursuant to Section 4.10 hereof (the "Offer Amount") or, if
less than the Offer Amount has been tendered, all Notes tendered in response
to the Asset Sale Offer. Payment for any Notes so purchased shall be made
in the same manner as interest payments are made.
If the Purchase Date is on or after an interest record date and on or
before the related interest payment date, any accrued and unpaid interest
shall be paid to the Person in whose name a Note is registered at the close
of business on such record date, and no additional interest shall be payable
to Holders who tender Notes pursuant to the Asset Sale Offer.
Upon the commencement of an Asset Sale Offer, the Issuer shall send,
by first class mail, a notice to the Trustee and each of the Holders, with
a copy to the Trustee. The notice shall contain all instructions and
materials necessary to enable such Holders to tender Notes pursuant to the
Asset Sale Offer. The Asset Sale Offer shall be made to all Holders. The
notice, which shall govern the terms of the Asset Sale Offer, shall state:
(a) that the Asset Sale Offer is being made pursuant to this
Section 3.09 and Section 4.10 hereof and the length of time the Asset
Sale Offer shall remain open;
(b) the Offer Amount, the purchase price and the Purchase Date;
(c) that any Note not tendered or accepted for payment shall
continue to accrue interest;
(d) that, unless the Issuer defaults in making such payment,
any Note accepted for payment pursuant to the Asset Sale Offer shall
cease to accrue interest after the Purchase Date;
(e) that Holders electing to have a Note purchased pursuant to
an Asset Sale Offer may only elect to have all of such Note purchased
and may not elect to have only a portion of such Note purchased;
(f) that Holders electing to have a Note purchased pursuant to
any Asset Sale Offer shall be required to surrender the Note, with the
form entitled "Option of Holder to Elect Purchase" on the reverse of
the Note completed, or transfer by book-entry transfer, to the Issuer,
a depository, if appointed by the Issuer, or a Paying Agent at the
address specified in the notice at least three days before the
Purchase Date;
(g) that Holders shall be entitled to withdraw their election
if the Issuer, the depository or the Paying Agent, as the case may be,
receives, not later than the expiration of the Offer Period, a
telegram, telex, facsimile transmission or letter setting forth the
name of the Holder, the principal amount of the Note the Holder
delivered for purchase and a statement that such Holder is withdrawing
his election to have such Note purchased;
(h) that, if the aggregate principal amount of Notes
surrendered by Holders exceeds the Offer Amount, the Issuer shall
select the Notes to be purchased on a pro rata basis (with such
adjustments as may be deemed appropriate by the Issuer so that only
Notes in denominations of $1,000, or integral multiples thereof, shall
be purchased); and
(i) that Holders whose Notes were purchased only in part shall
be issued new Notes equal in principal amount to the unpurchased
portion of the Notes surrendered (or transferred by book-entry
transfer).
On or before the Purchase Date, the Issuer shall, to the extent lawful,
accept for payment, on a pro rata basis to the extent necessary, the Offer
Amount of Notes or portions thereof tendered pursuant to the Asset Sale
Offer, or if less than the Offer Amount has been tendered, all Notes
tendered, and shall deliver to the Trustee an Officers' Certificate stating
that such Notes or portions thereof were accepted for payment by the Issuer
in accordance with the terms of this Section 3.09. The Issuer, the
Depository or the Paying Agent, as the case may be, shall promptly (but in
any case not later than five days after the Purchase Date) mail or deliver
to each tendering Holder an amount equal to the purchase price of the Notes
tendered by such Holder and accepted by the Issuer for purchase, and the
Issuer shall promptly issue a new Note, and the Trustee, upon written
request from the Issuer shall authenticate and mail or deliver such new Note
to such Holder, in a principal amount equal to any unpurchased portion of
the Note surrendered. Any Note not so accepted shall be promptly mailed or
delivered by the Issuer to the Holder thereof. The Issuer shall publicly
announce the results of the Asset Sale Offer on the Purchase Date.
Other than as specifically provided in this Section 3.09, any purchase
pursuant to this Section 3.09 shall be made pursuant to the provisions of
Sections 3.01 through 3.06 hereof.
ARTICLE 4
COVENANTS
Section 4.01. Payment of Notes.
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The Issuer shall pay or cause to be paid the principal of, premium, if
any, and interest on the Notes on the dates and in the manner provided in
the Notes. Principal, premium, if any, and interest shall be considered
paid on the date due if the Paying Agent, if other than the Issuer or a
Subsidiary thereof, holds as of 10:00 a.m. Eastern Time on the due date
money deposited by the Issuer in immediately available funds and designated
for and sufficient to pay all principal, premium, if any, and interest then
due. The Issuer shall pay all Liquidated Damages, if any, in the same
manner on the dates and in the amounts set forth in the Registration Rights
Agreement.
The Issuer shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue principal at the rate equal
to 1% per annum in excess of the then applicable interest rate on the Notes
to the extent lawful; it shall pay interest (including post-petition
interest in any proceeding under any Bankruptcy Law) on overdue installments
of interest and Liquidated Damages (without regard to any applicable grace
period) at the same rate to the extent lawful.
Section 4.02. Maintenance of Office or Agency.
--------------------------------
The Issuer shall maintain in the Borough of Manhattan, the City of New
York, an office or agency (which may be an office of the Trustee or an
affiliate of the Trustee, Registrar or co-registrar) where Notes may be
surrendered for registration of transfer or for exchange and where notices
and demands to or upon the Issuer in respect of the Notes and this Indenture
may be served. The Issuer shall give prompt written notice to the Trustee
of the location, and any change in the location, of such office or agency.
If at any time the Issuer shall fail to maintain any such required office
or agency or shall fail to furnish the Trustee with the address thereof,
such presentations, surrenders, notices and demands may be made or served
at the Corporate Trust Office of the Trustee.
The Issuer may also from time to time designate one or more other
offices or agencies where the Notes may be presented or surrendered for any
or all such purposes and may from time to time rescind such designations;
provided, however, that no such designation or rescission shall in any
manner relieve the Issuer of its obligation to maintain an office or agency
in the Borough of Manhattan, the City of New York for such purposes. The
Issuer shall give prompt written notice to the Trustee of any such
designation or rescission and of any change in the location of any such
other office or agency.
The Issuer hereby designates the Corporate Trust Office of the Trustee
as one such office or agency of the Issuer in accordance with Section 2.03.
Section 4.03. Reports.
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(a) Whether or not required by the rules and regulations of the SEC,
so long as any Notes are outstanding, Parent shall furnish to the Trustee
and to all Holders (i) all quarterly and annual financial information that
would be required to be contained in a filing with the SEC on Forms 10-Q and
10-K if Parent is required to file such Forms, including a "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
that describes the financial condition and results of operations of Parent
and Parent's consolidated Subsidiaries and, with respect to the annual
information only, a report thereon by the certified independent accountants
for Parent and (ii) all current reports that would be required to be filed
with the SEC on Form 8-K if Parent were required to file such reports. In
addition, whether or not required by the rules and regulations of the SEC,
Parent will file a copy of all such information and reports with the
Commission for public availability (unless the SEC will not accept such a
filing) and make such information available to securities analysts and
prospective investors upon request.
(b) Whether or not required by the rules and regulations of the SEC,
so long as any Notes are outstanding, the Issuer shall furnish to the
Trustee and to all Holders (i) all quarterly and annual financial
information including statements of operations, statements of cash flows and
balance sheets of the Issuer and its Restricted Subsidiaries, separate from
the financial condition and results of operations of Parent and of the
Unrestricted Subsidiaries of Issuer and, with respect to the annual
information only, a report thereon by the certified independent accountants
for the Issuer and (ii) all current reports that would be required to be
filed with the Commission on Form 8-K if the Issuer were required to file
such reports.
The Issuer shall at all times comply with TIA Section 314(a).
(c) For so long as any Transfer Restricted Securities remain
outstanding, Parent and the Issuer shall furnish to all Holders and
prospective purchasers of the Notes designated by the Holders of Transfer
Restricted Securities, promptly upon their request, the information required
to be delivered pursuant to Rule 144A(d)(4) under the Securities Act.
Section 4.04. Compliance Certificate.
----------------------
(a) Parent and the Issuer shall deliver to the Trustee, within 90
days after the end of each fiscal year, an Officers' Certificate stating
that a review of the activities of Parent, the Issuer and their Subsidiaries
during the preceding fiscal year has been made under the supervision of the
signing Officers with a view to determining whether Parent and the Issuer
have kept, observed, performed and fulfilled their obligations under this
Indenture, and further stating, as to each such Officer signing such
certificate, that to the best of his or her knowledge Parent and the Issuer
have kept, observed, performed and fulfilled each and every covenant
contained in this Indenture and are not in default in the performance or
observance of any of the terms, provisions and conditions of this Indenture
(or, if a Default or Event of Default shall have occurred, describing all
such Defaults or Events of Default of which he or she may have knowledge and
what action Parent or the Issuer is taking or proposes to take with respect
thereto) and that to the best of his or her knowledge no event has occurred
and remains in existence by reason of which payments on account of the
principal of or interest, if any, on the Notes is prohibited or if such
event has occurred, a description of the event and what action Parent or the
Issuer is taking or proposes to take with respect thereto.
(b) So long as not contrary to the then current recommendations of
the American Institute of Certified Public Accountants, the year-end
financial statements delivered pursuant to Section 4.03(a) and (b) above
shall be accompanied by a written statement of Parent's or the Issuer's, as
appropriate, independent public accountants (who shall be a firm of
established national reputation) that in making the examination necessary
for certification of such financial statements, nothing has come to their
attention that would lead them to believe that Parent or the Issuer has
violated any provisions of Article 4 or Article 5 hereof or, if any such
violation has occurred, specifying the nature and period of existence
thereof, it being understood that such accountants shall not be liable
directly or indirectly to any Person for any failure to obtain knowledge of
any such violation.
(c) Parent and the Issuer shall, so long as any of the Notes are
outstanding, deliver to the Trustee, forthwith upon any Officer becoming
aware of any Default or Event of Default, an Officers' Certificate
specifying such Default or Event of Default and what action Parent or the
Issuer is taking or proposes to take with respect thereto.
Section 4.05. Taxes.
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Parent and the Issuer shall pay, and shall cause each of their
respective Subsidiaries to pay, prior to delinquency, all material taxes,
assessments, and governmental levies except such as are contested in
good faith and by appropriate proceedings or where the failure to effect
such payment is not adverse in any material respect to the Holders of the
Notes.
Section 4.06. Stay, Extension and Usury Laws.
-------------------------------
The Issuer covenants (to the extent that it may lawfully do so) that
it shall not at any time insist upon, plead, or in any manner whatsoever
claim or take the benefit or advantage of, any stay, extension or usury law
wherever enacted, now or at any time hereafter in force, that may affect the
covenants or the performance of this Indenture; and the Issuer (to the
extent that it may lawfully do so) hereby expressly waives all benefit or
advantage of any such law, and covenants that it shall not, by resort to any
such law, hinder, delay or impede the execution of any power herein granted
to the Trustee, but shall suffer and permit the execution of every such
power as though no such law has been enacted.
Section 4.07. Restricted Payments.
--------------------
Parent and the Issuer will not, and will not permit any of the
Restricted Subsidiaries to, directly or indirectly: (i) declare or pay any
dividend or make any other payment or distribution on account of the Equity
Interests of Parent, the Issuer or any of the Restricted Subsidiaries
(including, without limitation, any payment in connection with any merger
or consolidation involving Parent, the Issuer or any of the Restricted
Subsidiaries) or to the direct or indirect holders of Equity Interests in
Parent, the Issuer or any of the Restricted Subsidiaries in their capacity
as such (other than dividends or distributions payable in Equity Interests
(other than Disqualified Stock) of the Issuer); (ii) purchase, redeem or
otherwise acquire or retire for value (including without limitation, in
connection with any merger or consolidation involving Parent, the Issuer or
any of the Restricted Subsidiaries) any Equity Interests of Parent, the
Issuer or any of the Restricted Subsidiaries; (iii) make any payment on or
with respect to, or purchase, redeem, defease or otherwise acquire or retire
for value any Indebtedness of the Issuer that is subordinated to the Notes
(other than Notes), any Indebtedness of Parent that is subordinated to the
Parent Guarantee or any Indebtedness of a Subsidiary Guarantor that is
subordinated to a Subsidiary Guarantee except a payment of interest or
principal at Stated Maturity; provided however, that Issuer or Parent may
make any such payment, purchase, redemption, defeasance or retirement for
value using the proceeds of Permitted Refinancing Indebtedness; or (iv) make
any Restricted Investment (all such payments and other actions set forth in
clauses (i) through (iv) above being collectively referred to as "Restricted
Payments").
(a) PARENT RESTRICTED PAYMENTS. Notwithstanding the foregoing,
Parent will be permitted to make Restricted Payments if, at the time of and
after giving effect to such Restricted Payment:
(i) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof;
(ii) Parent would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment
had been made at the beginning of the applicable four-quarter period,
have been permitted to incur at least $1.00 of additional Indebtedness
pursuant to the Fixed Charge Coverage Ratio test set forth in Section
4.09(a); and
(iii) such Restricted Payment, together with the aggregate
amount of all other Restricted Payments made by Parent after the Issue
Date, is less than the sum of (A) the lesser of (x) 50% of the Net
Income of Parent (not including any Net Income of the Issuer or any of
its or Parent's Subsidiaries) for the period (taken as one accounting
period) from and after the last day of the first fiscal quarter
immediately following the Issue Date to the end of Parent's most
recently ended fiscal quarter for which internal financial statements
are available at the time of such Restricted Payment (or, if such Net
Income for such period is a deficit, less 100% of such deficit) or (y)
50% of Parent's Consolidated Net Income for the period (taken as one
accounting period) from and after the last day of the first fiscal
quarter immediately following the Issue Date to the end of Parent's
most recently ended fiscal quarter for which internal financial
statements are available at the time of such Restricted Payment (or,
if such Consolidated Net Income for such period is a deficit, less
100% of such deficit), plus (B) 100% of the aggregate net cash
proceeds received by Parent from the issue or sale since the Issue
Date of Equity Interests of Parent (other than Disqualified Stock) or
of Disqualified Stock or debt securities of Parent that have been
converted into such Equity Interests (other than Equity Interests or
Disqualified Stock or convertible debt securities sold to a Subsidiary
of Parent), plus (C) to the extent that any Restricted Investment that
was made by Parent after the Issue Date is sold for cash or otherwise
liquidated or repaid for cash, the lesser of (x) the cash return of
capital with respect to such Restricted Investment (less the cost of
disposition, if any) and (y) the initial amount of such Restricted
Investment, plus (D) $5.0 million.
(b) ISSUER RESTRICTED PAYMENTS. Notwithstanding the foregoing, the
Issuer will be permitted to make Restricted Payments if, at the time of and
after giving effect to such Restricted Payment:
(i) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof;
(ii) the Issuer would, at the time of such Restricted Payment
and after giving pro forma effect thereto as if such Restricted
Payment had been made at the beginning of the applicable four-quarter
period, have been permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio test set
forth in Section 4.09(a); and
(iii) (A) in the case of a Restricted Payment made to a Person
other than Parent, such Restricted Payment, together with the
aggregate amount of all other Restricted Payments made by the Issuer
after the Issue Date, is less than the sum of (1) the lesser of (x)
50% of the Consolidated Net Income of the Issuer (not including any
Net Income of Parent) for the period (taken as one accounting period)
from and after the last day of the first fiscal quarter immediately
following the Issue Date to the end of the Issuer's most recently
ended fiscal quarter for which internal financial statements are
available at the time of such Restricted Payment (or, if such
Consolidated Net Income for such period is a deficit, less 100% of
such deficit) or (y) 50% of Parent's Consolidated Net Income for the
period (taken as one accounting period) from and after the last day of
the first fiscal quarter immediately following the Issue Date to the
end of Parent's most recently ended fiscal quarter for which internal
financial statements are available at the time of such Restricted
Payment (or, if such Consolidated Net Income for such period is a
deficit, less 100% of such deficit), plus (2) 100% of the aggregate
net cash proceeds received by the Issuer from the issue or sale since
the Issue Date of Equity Interests of the Issuer (other than
Disqualified Stock) or of Disqualified Stock or debt securities of the
Issuer that have been converted into such Equity Interests (other than
Equity Interests or Disqualified Stock or convertible debt securities
sold to a Subsidiary of the Issuer), plus (3) to the extent that any
Restricted Investment that was made by the Issuer or any of its
Restricted Subsidiaries after the Issue Date is sold for cash or
otherwise liquidated or repaid for cash, the lesser of (x) the cash
return of capital with respect to such Restricted Investment (less the
cost of disposition, if any) and (y) the initial amount of such
Restricted Investment, less (4) the aggregate amount of all Restricted
Payments made to Parent after the Issue Date under subparagraph (B) of
this paragraph (iii);
(B) in the case of a Restricted Payment made to Parent, such
Restricted Payment, together with the aggregate amount of all other
Restricted Payments made by the Issuer and its Restricted Subsidiaries
after the Issue Date, is less than the sum of (1) 50% of the
Consolidated Net Income of the Issuer (not including any Net Income of
Parent) for the period (taken as one accounting period) from and after
the last day of the first fiscal quarter immediately following the
Issue Date to the end of the Issuer's most recently ended fiscal
quarter for which internal financial statements are available at the
time of such Restricted Payment (or, if such Consolidated Net Income
for such period is a deficit, less 100% of such deficit) plus (2) 100%
of the aggregate net cash proceeds received by the Issuer from the
issue or sale since the Issue Date of Equity Interests of the Issuer
(other than Disqualified Stock) or of Disqualified Stock or debt
securities of the Issuer that have been converted into such Equity
Interests (other than Equity Interests or Disqualified Stock or
convertible debt securities sold to a Subsidiary of the Issuer) plus
(3) to the extent that any Restricted Investment that was made by the
Issuer or any of its Restricted Subsidiaries after the Issue Date is
sold for cash or otherwise liquidated or repaid for cash, the lesser
of (x) the cash return of capital with respect to such Restricted
Investment (less the cost of disposition, if any) and (y) the initial
amount of such Restricted Investment, less (4) the aggregate amount of
all Restricted Payments made to Persons other than Parent after the
Issue Date under subparagraph (A) of this paragraph (iii).
The foregoing provisions will not prohibit (i) the payment of any
dividend within 60 days after the date of declaration thereof, if at said
date of declaration such payment would have complied with the provisions of
this Indenture; (ii) the redemption, repurchase, retirement, defeasance or
other acquisition of any subordinated Indebtedness or Equity Interests of
the Issuer in exchange for, or out of the net cash proceeds of the
substantially concurrent sale (other than to a Restricted Subsidiary of the
Issuer) of, other Equity Interests of Parent or the Issuer (other than any
Disqualified Stock); provided that the amount of any such net cash proceeds
that are utilized for any such redemption, repurchase, retirement,
defeasance or other acquisition shall be excluded from clause (iii)(A)(2)
and (iii)(B)(2) of the preceding paragraph; (iii) the defeasance,
redemption, repurchase or other acquisition of subordinated Indebtedness
with the net cash proceeds from an incurrence of Permitted Refinancing
Indebtedness; (iv) the repurchase, redemption or other acquisition or
retirement for value of any Equity Interests of Parent, the Issuer or any
Restricted Subsidiary held by any member of the management of Parent, the
Issuer or any Restricted Subsidiary upon such member's death, disability or
termination pursuant to any management equity subscription agreement or
stock option agreement in effect as of the Issue Date; provided that the
aggregate price paid for all such repurchased, redeemed, acquired or retired
Equity Interests shall not exceed $1.0 million in any twelve-month period
or $2.0 million in the aggregate for all periods following the Issue Date
and no Default or Event of Default shall have occurred and be continuing
immediately after such transaction; (v) the payment of dividends by the
Issuer to Parent that are used within 30 days of the date paid solely to pay
accounting, legal charges incurred in connection with Parent's Securities
and Exchange Commission reporting requirements and other administrative
expenses; provided that no Event of Default shall have occurred and be
continuing; and provided further, that the aggregate amount of such
dividends may not exceed $1.5 million in any fiscal year; (vi) the payment
of up to $2.0 million by the Issuer to Parent in any fiscal year; provided
that (A) the Issuer would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been made
at the beginning of the applicable four-quarter period, have been permitted
to incur at least $1.00 of additional Indebtedness pursuant to the Fixed
Charge Coverage Ratio test set forth in Section 4.09(a) and (B) within 30
days of the receipt of such funds, Parent applies such funds to the costs
of a Qualified Project; provided further, that no Event of Default shall
have occurred and be continuing; and (vii) the payment by Parent within 12
months of the Issue Date of dividends on its Series A Preferred Stock in an
aggregate amount not to exceed $800,000 upon the mandatory conversion of
such stock.
(c) The Board of Directors may designate any Restricted Subsidiary
to be an Unrestricted Subsidiary if such designation would not cause a
Default. For purposes of making such determination, all outstanding
Investments by the Issuer and its Restricted Subsidiaries or by Parent
(except to the extent repaid in cash) in the Subsidiary so designated will
be deemed to be Restricted Payments at the time of such designation and will
reduce the amount available for Restricted Payments under the first
paragraph of this Section 4.07. All such outstanding Investments will be
deemed to constitute Investments in an amount equal to the greatest of
(x) the net book value of such Investments at the time of such designation,
(y) the fair market value of such Investments at the time of such
designation and (z) the original fair market value of such Investments at
the time they were made. Such designation will only be permitted if such
Restricted Payment would be permitted at such time and if such Restricted
Subsidiary otherwise meets the definition of an Unrestricted Subsidiary.
(d) The amount of all Restricted Payments (other than cash) shall be
the fair market value on the date of the Restricted Payment of the asset(s)
or securities proposed to be transferred or issued by Parent, the Issuer or
such Restricted Subsidiary, as the case may be, pursuant to the Restricted
Payment. The fair market value of any non-cash Restricted Payment shall be
determined by the Board of Directors whose resolution with respect thereto
shall be delivered to the Trustee, such determination to be based upon an
opinion or appraisal issued by an accounting, appraisal or investment
banking firm of national standing if such fair market value exceeds $1.0
million.
(e) Not later than the date of making any Restricted Payment, the
Issuer shall deliver to the Trustee an Officers' Certificate stating that
such Restricted Payment is permitted and setting forth the basis upon which
the calculations required by Section 4.08 were computed, together with a
copy of any fairness opinion or appraisal required by this Indenture.
Section 4.08. Dividend and Other Payment Restrictions
Affecting Subsidiaries.
---------------------------------------
(a) The Issuer will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer
to exist or become effective any encumbrance or restriction on the ability
of any Restricted Subsidiary to (i)(A) pay dividends or make any other
distributions to the Issuer or any of its Restricted Subsidiaries (1) on its
Capital Stock or (2) with respect to any other interest or participation in,
or measured by, its profits, or (B) pay any indebtedness owed to the Issuer
or any of its Restricted Subsidiaries, (ii) make loans or advances to the
Issuer or any of its Restricted Subsidiaries or (iii) transfer any of its
properties or assets to the Issuer or any of its Restricted Subsidiaries,
except for such encumbrances or restrictions existing under or by reason of
(A) Existing Indebtedness as in effect on the Issue Date, and any
amendments, modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings thereof; provided that such
amendments, modifications, restatements, renewals, increases, supplements,
refundings, replacement or refinancings are no more restrictive with respect
to such dividend and other payment restrictions than those contained in the
Revolving Credit Agreement as in effect on the Issue Date, (B) this
Indenture and the Notes, (C) applicable law, (D) any instrument governing
Indebtedness or Capital Stock of a Person acquired by the Issuer or any of
its Restricted Subsidiaries as in effect at the time of such acquisition
(except to the extent such Indebtedness was incurred in connection with or
in contemplation of such acquisition), which encumbrance or restriction is
not applicable to any Person, or the properties or assets of any Person,
other than the Person, or the property or assets of the Person, so acquired;
provided that, in the case of Indebtedness, such Indebtedness was permitted
by the terms of Section 4.09 to be incurred, (E) by reason of customary
non-assignment provisions in leases entered into in the ordinary course of
business and consistent with past practices, (F) purchase money obligations
for property acquired in the ordinary course of business that impose
restrictions of the nature described in clause (iii) above on the property
so acquired, or (G) Permitted Refinancing Indebtedness; provided that the
restrictions contained in the agreements governing such Permitted
Refinancing Indebtedness are no more restrictive than those contained in the
agreements governing the Indebtedness being refinanced.
Section 4.09. Incurrence of Indebtedness and Issuance of Preferred Stock.
-----------------------------------------------------------
(a) Neither Parent nor the Issuer will, and neither Parent nor the
Issuer will permit any of its Subsidiaries to, directly or indirectly,
create, incur, issue, assume, guarantee or otherwise become directly or
indirectly liable, contingently or otherwise (collectively, "incur"), with
respect to any Indebtedness (including Acquired Debt), that neither Parent
nor the Issuer will issue any Disqualified Stock and that Issuer will not
permit any of its Subsidiaries to issue any shares of preferred stock.
Notwithstanding the foregoing, Parent and the Issuer may incur Indebtedness
(including Acquired Debt) if the Fixed Charge Coverage Ratio of Parent or
the Issuer, as the case may be, for its most recently ended four full fiscal
quarters for which internal financial statements are available immediately
preceding the date on which such additional Indebtedness is incurred would
have been at least 2.0 to 1, determined on a pro forma basis (including a
pro forma application of the net proceeds therefrom), as if the additional
Indebtedness had been incurred at the beginning of such four-quarter period.
(b) PARENT PERMITTED DEBT. The provisions of paragraph (a) of this
Section 4.09 will not apply to the incurrence by Parent of any of the
following items of Indebtedness:
(i) the incurrence by Parent of Existing Indebtedness;
(ii) the incurrence by Parent of Permitted Refinancing
Indebtedness;
(iii) the incurrence by Parent of Indebtedness represented
by the Parent Guarantee;
(iv) the incurrence by Parent of Indebtedness under the Cadiz
Credit Agreement; provided that the aggregate principal amount of all
such Indebtedness, including all Permitted Refinancing Indebtedness
incurred to refund, refinance or replace any other Indebtedness
incurred pursuant to this clause, does not exceed $50.0 million;
(v) the incurrence by Parent of Capital Lease Obligations
incurred for the purpose of financing all or any part of the cost of
construction or improvement of property, plant or equipment used in
the Permitted Businesses of Parent in an aggregate principal amount
not to exceed $2.5 million at any time outstanding;
(vi) the incurrence by Parent of Non-Recourse Debt to finance a
Qualified Project;
(vii) the incurrence by Parent of Purchase Money
Indebtedness in connection with the purchase of assets to be used in
Permitted Businesses of Parent; and
(viii) the incurrence by Parent of up to $5.0 million
aggregate amount of Indebtedness for any purpose.
(c) ISSUER PERMITTED DEBT. The provisions of paragraph (a) of this
Section 4.09 will not apply to the incurrence of any of the following items
of Indebtedness:
(i) the incurrence by the Issuer and its Subsidiaries of
Existing Indebtedness;
(ii) the incurrence by the Issuer and its Subsidiaries of
Permitted Refinancing Indebtedness;
(iii) the incurrence by the Issuer of Indebtedness
represented by the Notes and the incurrence by the Subsidiary
Guarantors of the Subsidiary Guarantees;
(iv) the incurrence by the Issuer or any of the Issuer's Wholly
Owned Restricted Subsidiaries of intercompany Indebtedness between or
among the Issuer and any of its Wholly Owned Restricted Subsidiaries;
provided, however, that (A) such Indebtedness is expressly
subordinated to the prior payment in full in cash of all Obligations
with respect to the Notes and the Subsidiary Guarantees and (B)(1) any
subsequent issuance or transfer of Equity Interests that results in
any such Indebtedness being held by a Person other than the Issuer or
a Wholly Owned Restricted Subsidiary and (2) any sale or other
transfer of any such Indebtedness to a Person that is not either the
Issuer or a Wholly Owned Restricted Subsidiary shall be deemed, in
each case, to constitute an incurrence of such Indebtedness by the
Issuer or such Restricted Subsidiary, as the case may be;
(v) the incurrence by the Issuer's Unrestricted Subsidiaries of
Non-Recourse Debt; provided, however, that if any such Indebtedness
ceases to be Non-Recourse Debt of an Unrestricted Subsidiary, such
event shall be deemed to constitute an incurrence of Indebtedness by
a Restricted Subsidiary of the Issuer;
(vi) the incurrence by the Issuer of Revolving Indebtedness;
provided that the aggregate principal amount of all such Indebtedness,
including all Permitted Refinancing Indebtedness incurred to refund,
refinance or replace any other Indebtedness incurred pursuant to this
clause, does not exceed $30.0 million; and, provided further, that for
a period of 30 consecutive days during the 12 months preceding such
incurrence, the Issuer had outstanding no Revolving Indebtedness;
(vii) the incurrence by the Issuer or any of its Restricted
Subsidiaries of Capital Lease Obligations incurred for the purpose of
financing all or any part of the cost of construction or improvement
of property, plant or equipment used in a Permitted Business of the
Issuer or such Restricted Subsidiary, in an aggregate principal amount
not to exceed $2.5 million at any time outstanding;
(viii) the incurrence by the Issuer or any of its Restricted
Subsidiaries of Purchase Money Indebtedness to acquire land or
agricultural equipment from a Person who is not an Affiliate of the
Issuer of up to $10.0 million each fiscal year, not to exceed $30.0
million in the aggregate; or
(ix) the incurrence by the Issuer or any of its Restricted
Subsidiaries of up to $5.0 million aggregate amount of Indebtedness to
finance the development, maintenance or expansion of activities or
properties related to Permitted Businesses existing as of the Issue
Date.
(d) For purposes of this Section 4.09, in the event that an item of
Indebtedness meets the criteria of more than one of the categories set forth
in the two immediately preceding paragraphs or is entitled to be incurred
pursuant to paragraph (b) or (c) of this Section 4.09, the Issuer shall, in
its sole discretion, classify such item of Indebtedness in any manner that
complies with this Section and such item of Indebtedness will be treated as
having been incurred pursuant to only one of such clauses. Accrual of
interest and the accretion of accreted value will not be deemed to be an
incurrence of Indebtedness for purposes of this Section 4.09.
Section 4.10. Asset Sales.
------------
(a) Parent and the Issuer will not, and will not permit any of their
Restricted Subsidiaries to, consummate an Asset Sale unless (i) Parent, the
Issuer or the Restricted Subsidiary, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the fair
market value (evidenced by a resolution of the Board of Directors set forth
in an Officers' Certificate delivered to the Trustee) of the assets or
Equity Interests issued or sold or otherwise disposed of, (ii) at least 85%
of the consideration therefor received by Parent, the Issuer or such
Restricted Subsidiary is in the form of cash; provided that the amount of
(x) any liabilities (as shown on the most recent balance sheet of Parent,
the Issuer or any Restricted Subsidiary), of Parent, the Issuer or any
Restricted Subsidiary (other than contingent liabilities and liabilities
that are by their terms subordinated to the Notes or any guarantee thereof)
that are assumed by the transferee of any such assets pursuant to a
customary novation agreement that releases Parent, the Issuer or such
Restricted Subsidiary from further liability and (y) any securities, notes
or other obligations received by Parent, the Issuer or any such Restricted
Subsidiary from such transferee that are immediately converted by Parent,
the Issuer or such Restricted Subsidiary into cash (to the extent of the
cash received), shall be deemed to be cash for purposes of this provision,
(iii) if such Asset Sale involves the disposition of Collateral, Parent, the
Issuer or such Restricted Subsidiary has complied with Article 10 and (iv)
Parent, the Issuer or the Restricted Subsidiary, as the case may be, applies
the Net Proceeds as provided in paragraph (b) below.
(b) Any such Net Proceeds shall be applied within 180 days of the
related Asset Sale as follows:
(i) to the extent that such Net Proceeds are derived from
property or assets of the Issuer which do not constitute Collateral or
are not deemed (pursuant to the provisions described below) to
constitute Collateral Proceeds ("Non-Collateral Proceeds"), such Non-
Collateral Proceeds may, at the option of the Issuer, be applied to
repay Indebtedness outstanding under the Revolving Credit Agreement or
Existing Indebtedness;
(ii) to the extent that such Net Proceeds are derived from
property or assets of Parent which do not constitute Collateral or are
Non-Collateral Proceeds, such Non-Collateral Proceeds may, at the
option of Parent, be applied to repay outstanding Indebtedness of
Parent; and
(iii) with respect to any Net Proceeds derived from property
or assets which constitute Collateral ("Collateral Proceeds") or
derived from a transaction as a result of which a Subsidiary Guarantor
is released from its Subsidiary Guarantee as provided in Article 12
and which (pursuant to the provisions described below) are deemed to
be Collateral Proceeds, and with respect to any Non-Collateral
Proceeds remaining after application as described in subparagraphs (i)
or (ii) above (all such Collateral Proceeds and amounts deemed to be
Collateral Proceeds, together with any such remaining Non-Collateral
Proceeds being hereinafter called, collectively, the "Available
Amount"), such Available Amount shall, if the Issuer (or if Parent so
elects, in the case of Net Proceeds derived from property or assets of
Parent) so elects, be applied to make an investment in properties and
assets constituting Permitted Businesses that replace the properties
and assets that were the subject of such Asset Sale or in properties
and assets that will constitute Permitted Businesses ("Replacement
Assets"); provided that any Replacement Assets acquired with any such
Collateral Proceeds or amounts deemed to constitute Collateral
Proceeds (A) shall be owned by Parent, the Issuer or the Subsidiary
Guarantor that made the Asset Sale and shall not be subject to any
Liens except as expressly permitted by this Indenture and the
Collateral Documents (and Parent, the Issuer or such Subsidiary
Guarantor, as the case may be, shall execute and deliver to the
Trustee such Collateral Documents or other instruments as shall be
necessary to cause such Replacement Assets to become subject to a Lien
in favor of the Trustee, for the benefit of the holders of the Notes,
securing its obligations under the Notes or its Guarantee of the
Notes, as the case may be, and otherwise shall comply with the
provisions of this Indenture applicable to After-Acquired Property);
and (B) shall not include any Excluded Assets.
Any portion of the Available Amount that is not used as described in
subparagraph (i), (ii) or (iii) above within such 180 day period shall
constitute "Excess Proceeds" subject to disposition as provided below. When
the aggregate amount of Excess Proceeds exceeds $5.0 million, the Issuer
will be required to make an Asset Sale Offer to purchase the maximum
principal amount of Notes that may be purchased out of the Excess Proceeds,
at an offer price in cash in an amount equal to 100% of the principal amount
thereof plus accrued and unpaid interest and Liquidated Damages thereon, if
any, to the date of purchase, in accordance with the procedures set forth
in Section 3.09. The Issuer may make an Asset Sale Offer at any time Excess
Proceeds do not exceed $5.0 million. To the extent that the aggregate
amount of Notes tendered pursuant to an Asset Sale Offer is less than the
Excess Proceeds, the Issuer (or Parent, to the extent that Excess Proceeds
are derived from the sale of property or assets of Parent) may use any
remaining Excess Proceeds for general corporate purposes. If the aggregate
principal amount of Notes surrendered by Holders thereof exceeds the amount
of Excess Proceeds, the Trustee shall select the Notes to be purchased on
a pro rata basis. Upon completion of such offer to purchase, the amount of
Excess Proceeds shall be reset at zero.
Section 4.11. Transactions with Affiliates.
-----------------------------
Neither Parent nor the Issuer will, and neither will permit any of its
Restricted Subsidiaries to, make any payment to, or sell, lease, transfer
or otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into or make or amend any transaction,
contract, agreement, understanding, loan, advance or guarantee with, or for
the benefit of, any Affiliate (each of the foregoing, an "Affiliate
Transaction"), unless (i) such Affiliate Transaction is on terms that are
no less favorable to Parent, the Issuer or the relevant Restricted
Subsidiary than those that would have been obtained in a comparable
transaction by Parent, the Issuer or such Restricted Subsidiary with an
unrelated Person and (ii) Parent or the Issuer, as applicable, delivers to
the Trustee (a) with respect to any Affiliate Transaction or series of
related Affiliate Transactions involving aggregate consideration in excess
of $1.0 million, a resolution of the Board of Directors set forth in an
Officers' Certificate certifying that such Affiliate Transaction complies
with clause (i) above and that such Affiliate Transaction has been approved
by a majority of the disinterested members of the Board of Directors and (b)
with respect to any Affiliate Transaction or series of related Affiliate
Transactions involving aggregate consideration in excess of $5.0 million,
an opinion as to the fairness to the Holders of such Affiliate Transaction
from a financial point of view issued by an accounting, appraisal or
investment banking firm of national standing; provided that (w) any
employment agreement entered into by Parent, the Issuer or any of their
Restricted Subsidiaries in the ordinary course of business and consistent
with the past practice of Parent, the Issuer or such Restricted Subsidiary,
(x) transactions between or among the Issuer and/or its Restricted
Subsidiaries, (y) Restricted Payments that are permitted by Section 4.07
shall not be deemed Affiliate Transactions.
Section 4.12. Liens.
-----
Parent and Issuer will not, and neither Parent nor the Issuer will
permit any of its Restricted Subsidiaries to, directly or indirectly,
create, incur, assume or suffer to exist any Lien on any asset now owned or
hereafter acquired, or any income or profits therefrom or assign or convey
any right to receive income therefrom, except Permitted Liens.
Section 4.13. Line of Business.
-----------------
Parent and the Issuer will not, and will not permit any Restricted
Subsidiary to, engage in any business other than Permitted Businesses,
except to such extent as would not be material to the Issuer and its
Subsidiaries taken as a whole.
Section 4.14. Corporate Existence.
--------------------
Subject to Article 5 hereof, the Issuer shall do or cause to be done
all things necessary to preserve and keep in full force and effect (i) its
corporate existence, and the corporate, partnership or other existence of
each of its Subsidiaries, in accordance with the respective organizational
documents (as the same may be amended from time to time) of the Issuer or
any such Subsidiary and (ii) the rights (charter and statutory), licenses
and franchises of the Issuer and its Subsidiaries; provided, however, that
the Issuer shall not be required to preserve any such right, license or
franchise, or the corporate, partnership or other existence of any of its
Subsidiaries, if the Board of Directors shall determine that the
preservation thereof is no longer desirable in the conduct of the business
of the Issuer and its Subsidiaries, taken as a whole, and that the loss
thereof is not adverse in any material respect to the Holders of the Notes.
Section 4.15. Offer to Repurchase Upon Change of Control.
-------------------------------------------
Upon the occurrence of a Change of Control, each Holder of Notes will
have the right to require the Issuer to repurchase all or any part (equal
to $1,000 or an integral multiple thereof) of such Holder's Notes pursuant
to the offer described below (the "Change of Control Offer") at an offer
price in cash equal to 101% of the aggregate principal amount thereof plus
accrued and unpaid interest and Liquidated Damages, if any, thereon to the
date of purchase (the "Change of Control Payment"). Within 10 days
following any Change of Control, the Issuer will mail a notice to each
Holder describing the transaction or transactions that constitute the Change
of Control and offering to repurchase Notes pursuant to the procedures
required by Article 3 hereof and described in such notice. The Issuer will
comply with the requirements of Rule 14e-1 under the Exchange Act and any
other securities laws and regulations thereunder to the extent such laws and
regulations are applicable in connection with the repurchase of the Notes
as a result of a Change of Control.
The Change of Control Offer will remain open for a period of 20
Business Days following its commencement and no longer, except to the extent
that a longer period is required by applicable law (the "Change of Control
Offer Period"). No later than five Business Days after the termination of
the Change of Control Offer Period (the "Change of Control Purchase Date"),
the Issuer will purchase all Notes tendered in response to the Change of
Control Offer. Payment for any Notes so purchased will be made in the same
manner as interest payments are made. If the Change of Control Purchase
Date is on or after an interest record date and on or before the related
interest payment date, any accrued and unpaid interest will be paid to the
Person in whose name a Note is registered at the close of business on such
record date, and no additional interest will be payable to Holders who
tender Notes pursuant to the Change of Control Offer.
On the Change of Control Payment Date, the Issuer will, to the extent
lawful, (a) accept for payment all Notes or portions thereof properly
tendered pursuant to the Change of Control Offer, (b) deposit with the
Paying Agent an amount equal to the Change of Control Payment in respect of
all Notes or portions thereof so tendered and (c) deliver or cause to be
delivered to the Trustee the Notes so accepted together with an Officers'
Certificate stating the aggregate principal amount of Notes or portions
thereof being purchased by the Issuer. The Paying Agent will promptly mail
to each Holder of Notes so tendered the Change of Control Payment for such
Notes, and the Trustee will promptly authenticate and mail (or cause to be
transferred by book entry) to each Holder a new Note equal in principal
amount to any unpurchased portion of the Notes surrendered, if any; provided
that each such new Note will be in a principal amount of $1,000 or an
integral multiple thereof. The Issuer will publicly announce the results of
the Change of Control Offer on or as soon as practicable after the Change
of Control Payment Date.
Section 4.16 Additional Subsidiary Guarantees.
--------------------------------
(a) Parent will not create any Subsidiaries or own Capital Stock in
any corporation other than the Issuer, PSWR-I, Southwest Fruit Growers,
L.P., Pacific Packing, Inc., Pacific Real Estate, Inc. and Rancho Cadiz
Mutual Water Company. After the Issue Date, Parent will take all necessary
action to dissolve, liquidate or merge into Parent each of the foregoing
subsidiaries, except Southwest Fruit Growers, L.P. and Rancho Cadiz Mutual
Water Company.
(b) The Issuer will not, and will not permit any of the Subsidiary
Guarantors to, acquire or otherwise make any Investment in any Subsidiary
that is not a Subsidiary Guarantor unless either (i) such Investment is
permitted by Section 4.07 or (ii) such Subsidiary executes a Subsidiary
Guarantee, becomes a party to the Security Agreement and the Issuer Pledge
Agreement and delivers an opinion of counsel in accordance with the provi-
sions of this Indenture and the certificates representing the capital stock
of such Subsidiary are delivered to the Trustee in accordance with the terms
of the Issuer Pledge Agreement.
Section 4.17 Sale and Leaseback Transactions.
------------------------------
Parent and the Issuer will not, and neither Parent nor the Issuer will
permit any of its Restricted Subsidiaries to, enter into any sale and
leaseback transaction; provided that Parent or the Issuer may enter into a
sale and leaseback transaction if (i) Parent or the Issuer could have
(a) incurred Indebtedness in an amount equal to the Attributable Debt
relating to such sale and leaseback transaction pursuant to the Fixed Charge
Coverage Ratio test set forth in the Section 4.09(a) and (b) incurred a Lien
to secure such Indebtedness pursuant to Section 4.12, (ii) the gross cash
proceeds of such sale and leaseback transaction are at least equal to the
fair market value (as determined in good faith by the Board of Directors and
set forth in an Officers' Certificate delivered to the Trustee) of the
property that is the subject of such sale and leaseback transaction, and
(iii) the transfer of assets in such sale and leaseback transaction is
permitted by, and Parent or the Issuer applies the proceeds of such
transaction in compliance with, Section 4.10.
Section 4.18 Limitation on Issuances and Sales of Capital Stock of
Wholly Owned-Subsidiaries.
-----------------------------------------------------
Parent and the Issuer (i) will not, and will not permit any Wholly
Owned Subsidiary to, transfer, convey, sell, lease or otherwise dispose of
any Capital Stock of any Wholly Owned Subsidiary to any Person (other than
Parent, the Issuer or a Wholly Owned Subsidiary of Parent or the Issuer),
unless (a) such transfer, conveyance, sale, lease or other disposition is
of all the Capital Stock of such Wholly Owned Subsidiary and (b) the cash
Net Proceeds from such transfer, conveyance, sale, lease or other
disposition are applied in accordance with Section 4.10 and (ii) will not
permit any Wholly Owned Subsidiary to issue any of its Equity Interests
(other than, if necessary, shares of its Capital Stock constituting
directors' qualifying shares) to any Person other than to Parent, the Issuer
or a Wholly Owned Subsidiary of Parent or the Issuer.
Section 4.19 Advances.
--------
(a) All advances to Restricted Subsidiaries made by Parent or the
Issuer from time to time after the Issue Date will be evidenced by unsecured
Subsidiary Intercompany Notes in favor of Parent or the Issuer,
respectively, that will be pledged to the Trustee pursuant to the applicable
Collateral Documents as Collateral to secure the Notes.
(b) All advances by the Issuer to any Restricted Subsidiary
outstanding on the Issue Date will be evidenced by an unsecured Subsidiary
Intercompany Note that will be pledged to the Trustee pursuant to the
applicable Collateral Documents as Collateral for the Notes. Each
Subsidiary Intercompany Note will be payable upon demand and will bear
interest at the same rate as the Notes. A form of Subsidiary Intercompany
Note is attached as Annex B hereto.
Section 4.20 Collateral Documents.
--------------------
No later than the Issue Date, Parent shall execute the Parent Pledge
Agreement, the Issuer shall, and shall cause each Subsidiary Guarantor to,
execute the Issuer Pledge Agreement and the Security Agreement, and the
Issuer shall execute the Deed of Trust. Each Holder, by accepting a Note,
agrees to all of the terms and provisions of each Collateral Document, as
the same may be amended from time to time pursuant to the provisions hereof
and thereof, and authorizes the Trustee to execute each Collateral Document
on behalf of such Holder.
Section 4.21 Impairment of Security Interests.
------------------------------
(a) Parent and the Issuer will not, and neither Parent nor the Issuer
will permit any of its Restricted Subsidiaries to, take or omit to take any
action which action or omission could reasonably be expected to have the
result of adversely affecting or impairing the Lien in favor of the Trustee
for the benefit of the holders of the Notes, in the Collateral.
(b) Parent and the Issuer will not, and neither Parent nor the Issuer
will permit any of its Restricted Subsidiaries to, grant to any person
(other than the Trustee for the benefit of the holders of the Notes) any
interest whatsoever in the Collateral except as expressly permitted by this
Indenture and the Collateral Documents.
Section 4.22 Payments for Consent.
---------------------
Neither Parent, the Issuer nor any of the Subsidiaries will, directly
or indirectly, pay or cause to be paid any consideration, whether by way of
interest, fee or otherwise, to any Holder of any Notes for or as an
inducement to any consent, waiver or amendment of any of the terms or
provisions of this Indenture or the Notes unless such consideration is
offered to be paid or is paid to all Holders of the Notes that consent,
waive or agree to amend in the time frame set forth in the solicitation
documents relating to such consent, waiver or agreement.
Section 4.23 Maintenance of Properties and Insurance.
---------------------------------------
Each of the Issuer and the Guarantors shall maintain all properties
used in the conduct of their respective businesses in good condition, repair
and working order (ordinary wear and tear excepted) and supplied with all
necessary equipment and shall cause to be made all necessary repairs,
renewals, replacements, betterments and improvements thereof, all as in its
judgment may be necessary, so that the business carried on in connection
therewith may be properly conducted at all times; provided, however, that,
subject to the provisions of the Collateral Documents, nothing in this
Section 4.23 shall prevent the Issuer or any Guarantor from discontinuing
the operation or maintenance of any of such properties, or disposing of any
of them, if such discontinuance or disposal is, in the judgment of the
Issuer or such Guarantor (as evidenced by a Board Resolution of the Board
of Directors of the Issuer or such Guarantor, as the case may be, if the
fair market value of such properties is greater than $1,000,000 per asset
or set of related assets), desirable in the conduct of the business of the
Issuer or such Guarantor, and, in each case, will not be materially adverse
to the Holders.
Each of the Issuer and the Guarantors shall provide or cause to be
provided for itself and each of its Subsidiaries, insurance (including
appropriate self-insurance consistent with the extent self-insurance
generally is utilized by companies in the same line of business) against
loss or damage of the kinds that, in the reasonable, good faith opinion of
the Issuer or such Guarantor, as the case may be, are adequate and
appropriate for the conduct of the business of the Issuer and each Guarantor
in a prudent manner, with reputable insurers or with the government of the
United States of America or an agency or instrumentality thereof, in such
amounts, with such deductibles, and by such methods as shall be customary,
in the reasonable, good faith opinion of the Issuer or such Guarantor and
adequate and appropriate for the conduct of the business of the Issuer and
each of the Guarantors, in a prudent manner.
ARTICLE 5
SUCCESSORS
Section 5.01. Merger, Consolidation, or Sale of Assets.
-----------------------------------------
The Issuer may not consolidate or merge with or into (whether or not
the Issuer is the surviving corporation), or sell, assign, transfer, lease,
convey or otherwise dispose of all or substantially all of its properties
or assets in one or more related transactions, to another corporation,
Person or entity unless: (i) the Issuer is the surviving corporation or the
entity or the Person formed by or surviving any such consolidation or merger
(if other than the Issuer) or to which such sale, assignment, transfer,
lease, conveyance or other disposition shall have been made (such surviving
corporation or transferee Person, the "Surviving Entity") is a corporation
organized or existing under the laws of the United States, any state thereof
or the District of Columbia; (ii) the Surviving Entity assumes all the
obligations of the Issuer under the Notes, this Indenture and the Collateral
Documents pursuant to a supplemental indenture and other documents in form
reasonably satisfactory to the Trustee; (iii) the Surviving Entity causes
such amendments, supplements or other instruments to be filed and recorded
in such jurisdictions as may be required by applicable law to preserve and
protect the Lien of the Collateral Documents on the Collateral owned by or
transferred to the Surviving Entity, together with such financing statements
as may be required to perfect any security interests in such Collateral
which may be perfected by the filing of a financing statement under the
Uniform Commercial Code of the relevant states); (iv) the Collateral owned
by or transferred to the Surviving Entity shall (A) continue to constitute
Collateral under this Indenture and the Collateral Documents, (B) shall be
subject to the Lien in favor of the Trustee for the benefit of the holders
of the Notes and (C) shall not be subject to any Lien other than Liens
expressly permitted by this Indenture and the Collateral Documents; (v) the
property and assets of the person which is merged or consolidated with or
into such company, to the extent that they are property or assets of the
types which would constitute Collateral under the Collateral Documents shall
be treated as After-Acquired Property and the Surviving Entity shall take
such action as may be necessary to cause such property and assets to be made
subject to the Lien of the Collateral Documents in the manner and to the
extent required by this Indenture; (vi) immediately after such transaction
no Default or Event of Default exists; and (vii) except in the case of a
merger of the Issuer with or into a Wholly Owned Subsidiary of the Issuer,
the Surviving Entity (A) will have Consolidated Net Worth immediately after
the transaction equal to or greater than the Consolidated Net Worth of the
Issuer immediately preceding the transaction and (B) will, at the time of
such transaction and after giving pro forma effect thereto as if such
transaction had occurred at the beginning of the applicable four-quarter
period, be permitted to incur at least $1.00 of additional Indebtedness
pursuant to the Fixed Charge Coverage Ratio test set forth in Section
4.09(a).
Section 5.02. Successor Corporation Substituted.
----------------------------------
Upon any consolidation or merger, or any sale, assignment, transfer,
lease, conveyance or other disposition of all or substantially all of the
assets of the Issuer in accordance with Section 5.01 hereof, the successor
corporation formed by such consolidation or into or with which the Issuer
is merged or to which such sale, assignment, transfer, lease, conveyance or
other disposition is made shall succeed to, and be substituted for (so that
from and after the date of such consolidation, merger, sale, lease,
conveyance or other disposition, the provisions of this Indenture referring
to the "Issuer" shall refer instead to the successor corporation and not to
the Issuer), and may exercise every right and power of the Issuer under this
Indenture with the same effect as if such successor Person had been named
as the Issuer herein; provided, however, that the predecessor Issuer shall
not be relieved from the obligation to pay the principal of and interest on
the Notes except in the case of a sale of all of the Issuer's assets that
meets the requirements of Section 5.01 hereof.
ARTICLE 6
DEFAULTS AND REMEDIES
Section 6.01. Events of Default.
------------------
An "Event of Default" occurs if:
(a) the Issuer defaults in the payment when due of interest on,
or Liquidated Damages with respect to, the Notes and such default
continues for a period of 30 days;
(b) the Issuer defaults in the payment when due of principal of
or premium, if any, on the Notes when the same becomes due and payable
at maturity, upon redemption (including in connection with an offer to
purchase) or otherwise;
(c) Parent or the Issuer fails to comply with any of the
provisions of Section 4.07, 4.09, 4.10, 4.15 or 5.01 hereof;
(d) Parent, the Issuer or any Subsidiary Guarantor fails to
observe or perform any other covenant, representation, warranty or
other agreement in this Indenture, the Notes, the Guarantees of the
Notes, or the Collateral Documents for 30 days after notice to the
Issuer by the Trustee or the Holders of at least 25% in principal
amount of the Notes then outstanding;
(e) a default occurs under any mortgage, indenture or instrument
under which there may be issued or by which there may be secured or
evidenced any Indebtedness for money borrowed by the Issuer or any of
its Subsidiaries (or the payment of which is guaranteed by the Issuer
or any of its Subsidiaries), whether such Indebtedness or guarantee
now exists, or is created after the date of this Indenture, which
default results in the acceleration of such Indebtedness prior to its
express maturity and, in each case, the principal amount of such
Indebtedness, together with the principal amount of any other such
Indebtedness the maturity of which has been so accelerated, aggregates
$5.0 million or more;
(f) failure by Parent, the Issuer or any of their Subsidiaries
or any group of Subsidiaries that, taken as a whole, would constitute
a Significant Subsidiary to pay final judgments aggregating in excess
of $5.0 million, which judgments are not paid, discharged or stayed
for a period of 60 days;
(g) except as permitted by Article 12 hereof, (i) the Parent
Guarantee or any Subsidiary Guarantee (A) is held in any judicial
proceeding to be unenforceable or invalid or (B) ceases for any reason
to be in full force and effect, or (ii) Parent or any Subsidiary
Guarantor, or any Person acting on behalf of Parent or any Subsidiary
Guarantor, disaffirms or denies its obligations under its Guarantee of
the Notes;
(h) Parent or the Issuer shall breach any material
representation, warranty or agreement set forth in the Collateral
Documents or any Collateral Document shall be held in any judicial
proceeding to be unenforceable or invalid or shall cease for any
reason to be in full force and effect;
(i) Parent, the Issuer or any of the Significant Subsidiaries of
Parent or Issuer or any group of Subsidiaries that, taken as a whole,
would constitute a Significant Subsidiary pursuant to or within the
meaning of Bankruptcy Law:
(i) commences a voluntary case,
(ii) consents to the entry of an order for relief against
it in an involuntary case,
(iii) consents to the appointment of a custodian of it or
for all or substantially all of its property (a "Custodian"),
(iv) makes a general assignment for the benefit of its
creditors, or
(v) generally is not paying its debts as they become due;
or
(j) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:
(i) is for relief against Parent, the Issuer or any of
their Significant Subsidiaries or any group of Subsidiaries that,
taken as a whole, would constitute a Significant Subsidiary in
an involuntary case;
(ii) appoints a Custodian of Parent, the Issuer or any of
their Significant Subsidiaries or any group of Subsidiaries that,
taken as a whole, would constitute a Significant Subsidiary or
for all or substantially all of the property of Parent, the
Issuer or any Significant Subsidiary or any group of Subsidiaries
that, taken as a whole, would constitute a Significant
Subsidiary; or
(iii) orders the liquidation of Parent, the Issuer or any
Significant Subsidiary or any group of Subsidiaries that, taken
as a whole, would constitute a Significant Subsidiary;
and the order or decree remains unstayed and in effect for 60
consecutive days.
Section 6.02. Acceleration.
------------
(a) If any Event of Default (other than an Event of Default specified
in clause (i) or (j) of Section 6.01 hereof with respect to Parent, the
Issuer, any Significant Subsidiary or any group of Subsidiaries that, taken
as a whole, would constitute a Significant Subsidiary) occurs and is
continuing, the Trustee or the Holders of at least 25% in principal amount
of the then outstanding Notes may declare all the Notes to be due and
payable immediately. Upon any such declaration, the Notes shall become due
and payable immediately. Notwithstanding the foregoing, if an Event of
Default specified in clause (i) or (j) of Section 6.01 hereof occurs with
respect to Parent, the Issuer, any Significant Subsidiary or any group of
Subsidiaries that, taken as a whole, would constitute a Significant
Subsidiary, all outstanding Notes shall be due and payable immediately
without further action or notice. The Holders of a majority in aggregate
principal amount of the then outstanding Notes by written notice to the
Trustee may on behalf of all of the Holders rescind an acceleration and its
consequences if the rescission would not conflict with any judgment or
decree and if all existing Events of Default (except nonpayment of
principal, interest or premium that has become due solely because of the
acceleration) have been cured or waived.
(b) In the case of any Event of Default occurring by reason of any
willful action (or inaction) taken (or not taken) by or on behalf of the
Issuer with the intention of avoiding payment of the premium that the Issuer
would have had to pay if the Issuer then had elected to redeem the Notes
pursuant to the provisions of Section 3.07, an equivalent premium shall also
become and be immediately due and payable to the extent permitted by law
upon the acceleration of the Notes. If an Event of Default occurs prior to
April 15, 2001 by reason of any willful action (or inaction) taken (or not
taken) by or on behalf of the Issuer with the intention of avoiding the
prohibition on redemption of the Notes prior to April 15, 2001, then the
premium specified in Section 3.07 shall also become immediately due and
payable to the extent permitted by law upon the acceleration of the Notes.
Section 6.03. Other Remedies.
--------------
If an Event of Default occurs and is continuing, the Trustee may pursue
any available remedy to collect the payment of principal, premium, if any,
and interest on the Notes or to enforce the performance of any provision of
the Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any
of the Notes or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Holder of a Note in exercising any right or
remedy accruing upon an Event of Default shall not impair the right or
remedy or constitute a waiver of or acquiescence in the Event of Default.
All remedies are cumulative to the extent permitted by law.
Section 6.04. Waiver of Past Defaults.
-----------------------
Holders of not less than a majority in aggregate principal amount of
the then outstanding Notes by notice to the Trustee may on behalf of the
Holders of all of the Notes waive an existing Default or Event of Default
and its consequences hereunder, except a continuing Default or Event of
Default in the payment of the principal of, premium and Liquidated Damages,
if any, or interest on, the Notes (including in connection with an offer to
purchase); provided, however, that the Holders of a majority in aggregate
principal amount of the then outstanding Notes may rescind an acceleration
and its consequences, including any related payment default that resulted
from such acceleration. Upon any such waiver, such Default shall cease to
exist, and any Event of Default arising therefrom shall be deemed to have
been cured for every purpose of this Indenture; but no such waiver shall
extend to any subsequent or other Default or impair any right consequent
thereon.
Section 6.05. Control by Majority.
--------------------
Holders of a majority in principal amount of the then outstanding Notes
may direct the time, method and place of conducting any proceeding for
exercising any remedy available to the Trustee or exercising any trust or
power conferred on it. However, the Trustee may refuse to follow any
direction that conflicts with law or this Indenture that the Trustee
determines may be unduly prejudicial to the rights of other Holders of Notes
or that may involve the Trustee in personal liability.
Section 6.06. Limitation on Suits.
--------------------
A Holder of a Note may pursue a remedy with respect to this Indenture
or the Notes only if:
(a) the Holder of a Note gives to the Trustee written notice of
a continuing Event of Default;
(b) the Holders of at least 25% in principal amount of the then
outstanding Notes make a written request to the Trustee to pursue the
remedy;
(c) such Holder of a Note or Holders of Notes offer and, if
requested, provide to the Trustee indemnity satisfactory to the
Trustee against any loss, liability or expense;
(d) the Trustee does not comply with the request within 60 days
after receipt of the request and the offer and, if requested, the
provision of indemnity; and
(e) during such 60-day period the Holders of a majority in
principal amount of the then outstanding Notes do not give the Trustee
a direction inconsistent with the request.
A Holder of a Note may not use this Indenture to prejudice the rights of
another Holder of a Note or to obtain a preference or priority over another
Holder of a Note.
Section 6.07. Rights of Holders of Notes to Receive Payment.
-----------------------------------------------
Notwithstanding any other provision of this Indenture, the right of any
Holder of a Note to receive payment of principal, premium and Liquidated
Damages, if any, and interest on the Note, on or after the respective due
dates expressed in the Note (including in connection with an offer to
purchase), or to bring suit for the enforcement of any such payment on or
after such respective dates, shall not be impaired or affected without the
consent of such Holder.
Section 6.08. Collection Suit by Trustee.
--------------------------
If an Event of Default specified in Section 6.01(a) or (b) occurs and
is continuing, the Trustee is authorized to recover judgment in its own name
and as trustee of an express trust against the Issuer for the whole amount
of principal of, premium and Liquidated Damages, if any, and interest
remaining unpaid on the Notes and interest on overdue principal and, to the
extent lawful, interest and such further amount as shall be sufficient to
cover the costs and expenses of collection, including the reasonable
compensation, expenses, disbursements and advances of the Trustee, its
agents and counsel.
Section 6.09. Trustee May File Proofs of Claim.
---------------------------------
The Trustee is authorized to file such proofs of claim and other papers
or documents as may be necessary or advisable in order to have the claims
of the Trustee (including any claim for the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel)
and the Holders of the Notes allowed in any judicial proceedings relative
to the Issuer (or any other obligor upon the Notes), its creditors or its
property and shall be entitled and empowered to collect, receive and
distribute any money or other property payable or deliverable on any such
claims and any custodian in any such judicial proceeding is hereby
authorized by each Holder to make such payments to the Trustee, and in the
event that the Trustee shall consent to the making of such payments directly
to the Holders, to pay to the Trustee any amount due to it for the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 7.07 hereof. To the extent that the payment of any such
compensation, expenses, disbursements and advances of the Trustee, its
agents and counsel, and any other amounts due the Trustee under Section 7.07
hereof out of the estate in any such proceeding, shall be denied for any
reason, payment of the same shall be secured by a Lien on, and shall be paid
out of, any and all distributions, dividends, money, securities and other
properties that the Holders may be entitled to receive in such proceeding
whether in liquidation or under any plan of reorganization or arrangement
or otherwise. Nothing herein contained shall be deemed to authorize the
Trustee to authorize or consent to or accept or adopt on behalf of any
Holder any plan of reorganization, arrangement, adjustment or composition
affecting the Notes or the rights of any Holder, or to authorize the Trustee
to vote in respect of the claim of any Holder in any such proceeding.
Section 6.10. Priorities.
----------
If the Trustee collects any money pursuant to this Article, it shall
pay out the money in the following order:
FIRST: to the Trustee, its agents and attorneys for amounts due
under Section 7.07 hereof, including payment of all compensation, expense
and liabilities incurred, and all advances made, by the Trustee and the
costs and expenses of collection;
SECOND: to Holders of Notes for amounts due and unpaid on the
Notes for principal, premium and Liquidated Damages, if any, and interest,
ratably, without preference or priority of any kind, according to the
amounts due and payable on the Notes for principal, premium and Liquidated
Damages, if any and interest, respectively; and
THIRD: to the Issuer or to such party as a court of competent
jurisdiction shall direct.
The Trustee may fix a record date and payment date for any payment to
Holders of Notes pursuant to this Section 6.10.
Section 6.11. Undertaking for Costs.
----------------------
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted
by it as a Trustee, a court in its discretion may require the filing by any
party litigant in the suit of an undertaking to pay the costs of the suit,
and the court in its discretion may assess reasonable costs, including
reasonable attorneys' fees, against any party litigant in the suit, having
due regard to the merits and good faith of the claims or defenses made by
the party litigant. This Section does not apply to a suit by the Trustee,
a suit by a Holder of a Note pursuant to Section 6.07 hereof, or a suit by
Holders of more than 25% in principal amount of the then outstanding Notes.
ARTICLE 7
TRUSTEE
Section 7.01. Duties of Trustee.
-----------------
(a) If an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in its exercise, as a
prudent man would exercise or use under the circumstances in the conduct of
his own affairs.
(b) Except during the continuance of an Event of Default:
(i) the duties of the Trustee shall be determined solely by the
express provisions of this Indenture and the Trustee need perform only
those duties that are specifically set forth in this Indenture and no
others, and no implied covenants or obligations shall be read into
this Indenture against the Trustee; and
(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements
of this Indenture. However, the Trustee shall examine the
certificates and opinions to determine whether or not they conform to
the requirements of this Indenture.
(c) The Trustee may not be relieved from liabilities for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of paragraph (b)
of this Section;
(ii) the Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer, unless it is proved that
the Trustee was negligent in ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect to any
action it takes or omits to take in good faith in accordance with a
direction received by it pursuant to Section 6.05 hereof.
(d) Whether or not therein expressly so provided, every provision of
this Indenture that in any way relates to the Trustee is subject to
paragraphs (a), (b), and (c) of this Section.
(e) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or incur any liability. The Trustee shall be
under no obligation to exercise any of its rights and powers under this
Indenture at the request or direction of any of the Holders, unless such
Holders shall have offered to the Trustee security and indemnity
satisfactory to it against any loss, costs, liabilities and expenses that
might be incurred by it in connection with such request or direction.
(f) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Issuer.
Money held in trust by the Trustee need not be segregated from other funds
except to the extent required by law.
Section 7.02. Rights of Trustee.
------------------
(a) The Trustee may conclusively rely upon any document believed by
it to be genuine and to have been signed or presented by the proper Person.
The Trustee need not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require
an Officers' Certificate or an Opinion of Counsel or both. The Trustee
shall not be liable for any action it takes or omits to take in good faith
in reliance on such Officers' Certificate or Opinion of Counsel. The
Trustee may consult with counsel and the written advice of such counsel or
any Opinion of Counsel shall be full and complete authorization and
protection from liability in respect of any action taken, suffered or
omitted by it hereunder in good faith and in reliance thereon.
(c) The Trustee may act through its attorneys and agents and shall
not be responsible for the misconduct or negligence of any agent appointed
with due care.
(d) The Trustee shall not be liable for any action it takes or omits
to take in good faith that it believes to be authorized or within the rights
or powers conferred upon it by this Indenture.
(e) Unless otherwise specifically provided in this Indenture, any
demand, request, direction or notice from the Issuer shall be sufficient if
signed by an Officer of the Issuer.
(f) The Trustee shall be under no obligation to exercise any of its
rights and powers under this Indenture at the request or direction of any
of the Holders, unless such Holders shall have offered to the Trustee
security and indemnity satisfactory to it against any loss, costs,
liabilities and expenses that might be incurred by it in connection with
such request or direction.
Section 7.03. Individual Rights of Trustee.
----------------------------
The Trustee in its individual or any other capacity may become the
owner or pledgee of Notes and may otherwise deal with the Issuer or any
Affiliate of the Issuer with the same rights it would have if it were not
Trustee. However, in the event that the Trustee acquires any conflicting
interest it must eliminate such conflict within 90 days, apply to the SEC
for permission to continue as trustee (in the event such conflict arises
after the consummation of the Exchange Offer or the effectiveness of any
Shelf Registration Statement filed pursuant to the Registration Rights
Agreement) or resign. Any Agent may do the same with like rights and
duties. The Trustee is also subject to Sections 7.10 and 7.11 hereof.
Section 7.04. Trustee's Disclaimer.
---------------------
The Trustee shall not be responsible for and makes no representation
as to the validity or adequacy of this Indenture or the Notes, it shall not
be accountable for the Issuer's use of the proceeds from the Notes or any
money paid to the Issuer or upon the Issuer's direction under any provision
of this Indenture, it shall not be responsible for the use or application
of any money received by any Paying Agent other than the Trustee, and it
shall not be responsible for any statement or recital herein or any
statement in the Notes or any other document in connection with the sale of
the Notes or pursuant to this Indenture other than its certificate of
authentication.
Section 7.05. Notice of Defaults.
-------------------
If a Default or Event of Default occurs and is continuing and if it is
known to the Trustee, the Trustee shall mail to Holders of Notes a notice
of the Default or Event of Default within 90 days after it occurs. Except
in the case of a Default or Event of Default in payment of principal of,
premium, if any, or interest on any Note, the Trustee may withhold the
notice if and so long as a committee of its Responsible Officers in good
faith determines that withholding the notice is in the interests of the
Holders of the Notes.
Section 7.06. Reports by Trustee to Holders of the Notes.
------------------------------------------
Within 60 days after each May 15 beginning with the May 15 following
the date of this Indenture, and for so long as Notes remain outstanding, the
Trustee shall mail to the Holders of the Notes a brief report dated as of
such reporting date that complies with TIA Section 313(a) (but if no event
described in TIA Section 313(a) has occurred within the twelve months preceding
the reporting date, no report need be transmitted). The Trustee also shall
comply with TIA Section 313(b)(2). The Trustee shall also transmit by mail
all reports as required by TIA Section 313(c).
A copy of each report at the time of its mailing to the Holders of
Notes shall be mailed to the Issuer and, if such report is prepared after
the consummation of the Exchange Offer or the effectiveness of any Shelf
Registration Statement filed pursuant to the provisions of the Registration
Rights Agreement, filed with the SEC and each stock exchange on which the
Notes are listed in accordance with TIA Section 313(d). The Issuer shall
promptly notify the Trustee when the Notes are listed on any stock exchange.
Section 7.07. Compensation and Indemnity.
---------------------------
The Issuer shall pay to the Trustee from time to time reasonable
compensation for its acceptance of this Indenture and services hereunder.
The Trustee's compensation shall not be limited by any law on compensation
of a trustee of an express trust. The Issuer shall reimburse the Trustee
promptly upon request for all reasonable disbursements, advances and
expenses incurred or made by it in addition to the compensation for its
services. Such expenses shall include the reasonable compensation,
disbursements and expenses of the Trustee's agents and counsel.
The Issuer shall indemnify the Trustee against any and all losses,
liabilities or expenses incurred by it arising out of or in connection with
the acceptance or administration of its duties under this Indenture,
including the costs and expenses of enforcing this Indenture against the
Issuer (including this Section 7.07) and defending itself against any claim
(whether asserted by the Issuer or any Holder or any other person) or
liability in connection with the exercise or performance of any of its
powers or duties hereunder, except to the extent any such loss, liability
or expense may be attributable to its negligence or bad faith. The Trustee
shall notify the Issuer promptly of any claim for which it may seek
indemnity. Failure by the Trustee to so notify the Issuer shall not relieve
the Issuer of its obligations hereunder. The Issuer shall defend the claim
and the Trustee shall cooperate in the defense. The Trustee may have
separate counsel and the Issuer shall pay the reasonable fees and expenses
of such counsel. The Issuer need not pay for any settlement made without
its consent, which consent shall not be unreasonably withheld or delayed.
The obligations of the Issuer under this Section 7.07 shall survive the
satisfaction and discharge of this Indenture.
To secure the Issuer's payment obligations in this Section, the Trustee
shall have a Lien prior to the Notes on all money or property held or
collected by the Trustee, except that held in trust to pay principal and
interest on particular Notes. Such Lien shall survive the satisfaction and
discharge of this Indenture.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.01(i) or (j) hereof occurs, the expenses and
the compensation for the services (including the fees and expenses of its
agents and counsel) are intended to constitute expenses of administration
under any Bankruptcy Law.
Section 7.08. Replacement of Trustee.
-----------------------
A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance
of appointment as provided in this Section.
The Trustee may resign in writing at any time and be discharged from
the trust hereby created by so notifying the Issuer. The Holders of Notes
of a majority in principal amount of the then outstanding Notes may remove
the Trustee by so notifying the Trustee and the Issuer in writing. The
Issuer may remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10 hereof;
(b) the Trustee is adjudged a bankrupt or an insolvent or an order
for relief is entered with respect to the Trustee under any Bankruptcy
Law;
(c) a Custodian or public officer takes charge of the Trustee or its
property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Issuer shall promptly appoint a
successor Trustee. Within one year after the successor Trustee takes
office, the Holders of a majority in principal amount of the then
outstanding Notes may appoint a successor Trustee to replace the successor
Trustee appointed by the Issuer.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Issuer,
or the Holders of Notes of at least 25% in principal amount of the then
outstanding Notes may petition any court of competent jurisdiction for the
appointment of a successor Trustee.
If the Trustee, after written request by any Holder of a Note who has
been a Holder of a Note for at least six months, fails to comply with
Section 7.10, such Holder of a Note may petition any court of competent
jurisdiction for the removal of the Trustee and the appointment of a
successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Issuer. Thereupon, the
resignation or removal of the retiring Trustee shall become effective, and
the successor Trustee shall have all the rights, powers and duties of the
Trustee under this Indenture. The successor Trustee shall mail a notice of
its succession to Holders of the Notes. The retiring Trustee shall promptly
transfer all property held by it as Trustee to the successor Trustee,
provided all sums owing to the Trustee hereunder have been paid and subject
to the Lien provided for in Section 7.07 hereof. Notwithstanding
replacement of the Trustee pursuant to this Section 7.08, the Issuer's
obligations under Section 7.07 hereof shall continue for the benefit of the
retiring Trustee.
Section 7.09. Successor Trustee by Merger, etc.
--------------------------------
If the Trustee consolidates, merges or converts into, or transfers all
or substantially all of its corporate trust business to, another
corporation, the successor corporation without any further act shall be the
successor Trustee.
Section 7.10. Eligibility; Disqualification.
-----------------------------
There shall at all times be a Trustee hereunder that is a corporation
organized and doing business under the laws of the United States of America
or of any state thereof that is authorized under such laws to exercise
corporate trustee power, that is subject to supervision or examination by
federal or state authorities and that has a combined capital and surplus of
at least $100 million as set forth in its most recent published annual
report of condition.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA Section 310(a)(1), (2) and (5). The Trustee is
subject to TIA Section 310(b).
Section 7.11. Preferential Collection of Claims Against Issuer.
------------------------------------------------
The Trustee is subject to TIA Section 311(a), excluding any creditor
relationship listed in TIA Section 311(b). A Trustee who has resigned or been
removed shall be subject to TIA Section 311(a) to the extent indicated therein.
Section 7.12 Trustee Risk.
------------------
None of the provisions contained in this Indenture shall require the
Trustee to expend or risk its own funds or otherwise incur personal
financial liability in the performance of any of its duties or in the
exercise of any of its rights or powers, if it shall have reasonable grounds
for believing that the repayment of such funds or liability is not
reasonably assured to it. Whether or not expressly provided herein, every
provision of this Indenture relating to the conduct or affecting the
liability of or affording protection to the Trustee shall be subject to
Section 7.01 hereof and the requirements of the TIA.
Section 7.13 Appointment of Co-Trustee.
-------------------------
(a) In case of litigation under this Indenture, and in particular in
case of the enforcement of any document or default, or in case the Trustee
deems that by reason of any present or future law of any jurisdiction it may
not exercise any of the powers, rights or remedies herein granted to the
Trustee or hold title to the properties in trust, as herein granted, or take
any other action which may be desirable or necessary in connection
therewith, it may be necessary that the Trustee appoint an additional
individual or institution as separate or co-trustee (the "Co-Trustee").
(b) The Trustee shall, upon the prior written consent of the Issuer,
which shall not be unreasonably withheld, appoint an additional individual
or institution as Co-Trustee. The Co-Trustee shall deliver a written
acceptance of its appointment to the Issuer. Thereupon, the Co-Trustee
shall have all the rights, powers and duties of the Trustee under this
Indenture. The Trustee shall mail a notice of the appointment of the
Co-Trustee to the Holders.
(c) In the event the Trustee appoints a Co-Trustee, each and every
remedy, power, right, claim, demand, cause of action and immunity expressed
or intended by this Indenture to be exercised by and vested in the Trustee,
but only to the extent necessary to enable such Co-Trustee to exercise such
powers, rights and remedies, and every covenant and obligation necessary to
the exercise thereof by such Co-Trustee shall run to and be enforceable by
either of them.
If any written instrument is required by the separate Co-Trustee so
appointed by the Trustee for fuller and more certain vesting in and
confirming to him or it such rights, powers, trusts, duties and obligations,
any and all such instruments shall, on request, be executed, acknowledged
and delivered to the Issuer. In the event of the death, incapacity,
resignation or removal of any Co-Trustee, all the powers, trusts, rights,
duties and obligations of such Co-Trustee, so far as permitted by law, shall
vest in and be exercised by the Trustee until the appointment of a new
trustee or successor to such Co-Trustee.
ARTICLE 8
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Section 8.01. Option to Effect Legal Defeasance or Covenant Defeasance.
---------------------------------------------------------
The Issuer may, at the option of its Board of Directors evidenced by
a resolution set forth in an Officers' Certificate, at any time, elect to
have either Section 8.02 or 8.03 hereof be applied to all outstanding Notes
upon compliance with the conditions set forth below in this Article 8.
Section 8.02. Legal Defeasance and Discharge.
------------------------------
Upon the Issuer's exercise under Section 8.01 hereof of the option
applicable to this Section 8.02, the Issuer shall, subject to the
satisfaction of the conditions set forth in Section 8.04 hereof, be deemed
to have been discharged from its obligations with respect to all outstanding
Notes on the date the conditions set forth below are satisfied (hereinafter,
"Legal Defeasance"). For this purpose, Legal Defeasance means that the
Issuer shall be deemed to have paid and discharged the entire Indebtedness
represented by the outstanding Notes, which shall thereafter be deemed to
be "outstanding" only for the purposes of Section 8.05 hereof and the other
Sections of this Indenture referred to in (a) and (b) below, and to have
satisfied all its other obligations under such Notes and this Indenture (and
the Trustee, on demand of and at the expense of the Issuer, shall execute
proper instruments acknowledging the same), except for the following
provisions which shall survive until otherwise terminated or discharged
hereunder: (a) the rights of Holders of outstanding Notes to receive solely
from the trust fund described in Section 8.04 hereof, and as more fully set
forth in such Section, payments in respect of the principal of, premium, if
any, and interest on such Notes when such payments are due, (b) the Issuer's
obligations with respect to such Notes under Article 2 and Section 4.02
hereof, (c) the rights, powers, trusts, duties and immunities of the Trustee
hereunder and the Issuer's obligations in connection therewith and (d) this
Article 8. Subject to compliance with this Article 8, the Issuer may
exercise its option under this Section 8.02 notwithstanding the prior
exercise of its option under Section 8.03 hereof.
Section 8.03. Covenant Defeasance.
--------------------
Upon the Issuer's exercise under Section 8.01 hereof of the option
applicable to this Section 8.03, the Issuer shall, subject to the
satisfaction of the conditions set forth in Section 8.04 hereof, be released
from its obligations under the covenants contained in Sections 4.07, 4.08,
4.09, 4.10, 4.11, 4.12, 4.13 and 4.15 hereof with respect to the outstanding
Notes on and after the date the conditions set forth below are satisfied
(hereinafter, "Covenant Defeasance"), and the Notes shall thereafter be
deemed not "outstanding" for the purposes of any direction, waiver, consent
or declaration or act of Holders (and the consequences of any thereof) in
connection with such covenants, but shall continue to be deemed
"outstanding" for all other purposes hereunder (it being understood that
such Notes shall not be deemed outstanding for accounting purposes). For
this purpose, Covenant Defeasance means that, with respect to the
outstanding Notes, the Issuer may omit to comply with and shall have no
liability in respect of any term, condition or limitation set forth in any
such covenant, whether directly or indirectly, by reason of any reference
elsewhere herein to any such covenant or by reason of any reference in any
such covenant to any other provision herein or in any other document and
such omission to comply shall not constitute a Default or an Event of
Default under Section 6.01 hereof, but, except as specified above, the
remainder of this Indenture and such Notes shall be unaffected thereby. In
addition, upon the Issuer's exercise under Section 8.01 hereof of the option
applicable to this Section 8.03 hereof, subject to the satisfaction of the
conditions set forth in Section 8.04 hereof, Sections 6.01(c) through
6.01(f) hereof shall not constitute Events of Default.
Section 8.04. Conditions to Legal or Covenant Defeasance.
------------------------------------------
The following shall be the conditions to the application of either
Section 8.02 or 8.03 hereof to the outstanding Notes:
In order to exercise either Legal Defeasance or Covenant Defeasance:
(a) the Issuer must irrevocably deposit with the Trustee, in
trust, for the benefit of the Holders, cash in United States dollars,
non-callable Government Securities, or a combination thereof, in such
amounts as will be sufficient, in the opinion of a nationally
recognized firm of independent public accountants, to pay the
principal of, premium and Liquidated Damages, if any, and interest on
the outstanding Notes on the stated date for payment thereof or on the
applicable redemption date, as the case may be;
(b) in the case of an election under Section 8.02 hereof, the
Issuer shall have delivered to the Trustee an Opinion of Counsel in
the United States reasonably acceptable to the Trustee confirming that
(A) the Issuer has received from, or there has been published by, the
Internal Revenue Service a ruling or (B) since the date of this
Indenture, there has been a change in the applicable federal income
tax law, in either case to the effect that, and based thereon such
Opinion of Counsel shall confirm that, the Holders of the outstanding
Notes will not recognize income, gain or loss for federal income tax
purposes as a result of such Legal Defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such Legal Defeasance had
not occurred;
(c) in the case of an election under Section 8.03 hereof, the
Issuer shall have delivered to the Trustee an Opinion of Counsel in
the United States reasonably acceptable to the Trustee confirming that
the Holders of the outstanding Notes will not recognize income, gain
or loss for federal income tax purposes as a result of such Covenant
Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been
the case if such Covenant Defeasance had not occurred;
(d) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event
of Default resulting from the incurrence of Indebtedness all or a
portion of the proceeds of which will be used to defease the Notes
pursuant to this Article 8 concurrently with such incurrence) or
insofar as Sections 6.01(i) or 6.01(j) hereof is concerned, at any
time in the period ending on the 91st day after the date of deposit;
(e) such Legal Defeasance or Covenant Defeasance shall not result
in a breach or violation of, or constitute a default under, any
material agreement or instrument (other than this Indenture) to which
the Issuer or any of its Subsidiaries is a party or by which the
Issuer or any of its Subsidiaries is bound;
(f) the Issuer shall have delivered to the Trustee an opinion of
counsel to the effect that on the 91st day following the deposit, the
trust funds will not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally;
(g) the Issuer shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Issuer with
the intent of preferring the Holders over any other creditors of the
Issuer or with the intent of defeating, hindering, delaying or
defrauding any other creditors of the Issuer; and
(h) the Issuer shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all
conditions precedent provided for or relating to the Legal Defeasance
or the Covenant Defeasance have been complied with.
Section 8.05. Deposited Money and Government Securities to be
Held in Trust; Other Miscellaneous Provisions.
---------------------------------------------
Subject to Section 8.06 hereof, all money and non-callable Government
Securities (including the proceeds thereof) deposited with the Trustee (or
other qualifying trustee, collectively for purposes of this Section 8.05,
the "Trustee") pursuant to Section 8.04 hereof in respect of the outstanding
Notes shall be held in trust and applied by the Trustee, in accordance with
the provisions of such Notes and this Indenture, to the payment, either
directly or through any Paying Agent (including the Issuer acting as Paying
Agent) as the Trustee may determine, to the Holders of such Notes of all
sums due and to become due thereon in respect of principal, premium, if any,
and interest, but such money need not be segregated from other funds except
to the extent required by law.
The Issuer shall pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against the cash or non-callable
Government Securities deposited pursuant to Section 8.04 hereof or the
principal and interest received in respect thereof other than any such tax,
fee or other charge which by law is for the account of the Holders of the
outstanding Notes.
Anything in this Article 8 to the contrary notwithstanding, the Trustee
shall deliver or pay to the Issuer from time to time upon the request of the
Issuer any money or non-callable Government Securities held by it as
provided in Section 8.04 hereof which, in the opinion of a nationally
recognized firm of independent public accountants expressed in a written
certification thereof delivered to the Trustee (which may be the opinion
delivered under Section 8.04(a) hereof), are in excess of the amount thereof
that would then be required to be deposited to effect an equivalent Legal
Defeasance or Covenant Defeasance.
Section 8.06. Repayment to Issuer.
-------------------
Any money deposited with the Trustee or any Paying Agent, or then held
by the Issuer, in trust for the payment of the principal of, premium, if
any, or interest on any Note and remaining unclaimed for two years after
such principal, and premium, if any, or interest has become due and payable
shall be paid to the Issuer on its request or (if then held by the Issuer)
shall be discharged from such trust; and the Holder of such Note shall
thereafter, as a secured creditor, look only to the Issuer for payment
thereof, and all liability of the Trustee or such Paying Agent with respect
to such trust money, and all liability of the Issuer as trustee thereof,
shall thereupon cease; provided, however, that the Trustee or such Paying
Agent, before being required to make any such repayment, may at the expense
of the Issuer cause to be published once, in the New York Times and The Wall
Street Journal (national edition), notice that such money remains unclaimed
and that, after a date specified therein, which shall not be less than 30
days from the date of such notification or publication, any unclaimed
balance of such money then remaining will be repaid to the Issuer.
Section 8.07. Reinstatement.
--------------
If the Trustee or Paying Agent is unable to apply any United States
dollars or non-callable Government Securities in accordance with
Section 8.02 or 8.03 hereof, as the case may be, by reason of any order or
judgment of any court or governmental authority enjoining, restraining or
otherwise prohibiting such application, then the Issuer's obligations under
this Indenture and the Notes shall be revived and reinstated as though no
deposit had occurred pursuant to Section 8.02 or 8.03 hereof until such time
as the Trustee or Paying Agent is permitted to apply all such money in
accordance with Section 8.02 or 8.03 hereof, as the case may be; provided,
however, that, if the Issuer makes any payment of principal of, premium, if
any, or interest on any Note following the reinstatement of its obligations,
the Issuer shall be subrogated to the rights of the Holders of such Notes
to receive such payment from the money held by the Trustee or Paying Agent.
ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER
Section 9.01. Without Consent of Holders of Notes.
-----------------------------------
Notwithstanding Section 9.02 of this Indenture, the Issuer and the
Trustee may amend or supplement this Indenture, the Notes or the Collateral
Documents without the consent of any Holder of a Note:
(a) to cure any ambiguity, defect or inconsistency;
(b) to provide for uncertificated Notes in addition to or in place
of certificated Notes;
(c) to provide for the assumption of the Issuer's obligations to the
Holders of the Notes in the case of a merger or consolidation pursuant to
Article 5 hereof;
(d) to make any change that would provide any additional rights or
benefits to the Holders of the Notes or that does not adversely affect the
legal rights hereunder of any Holder of the Note; or
(e) to comply with requirements of the SEC in order to effect or
maintain the qualification of this Indenture under the TIA.
Upon the request of the Issuer accompanied by a resolution of its Board
of Directors authorizing the execution of any such amended or supplemental
Indenture, and upon receipt by the Trustee of the documents described in
Section 7.02 hereof, the Trustee shall join with the Issuer in the execution
of any amended or supplemental Indenture authorized or permitted by the
terms of this Indenture and to make any further appropriate agreements and
stipulations that may be therein contained, but the Trustee shall not be
obligated to enter into such amended or supplemental Indenture that affects
its own rights, duties or immunities under this Indenture or otherwise.
In addition to the foregoing, the Trustee may, without the consent of
any Holder, enter into an amendment to the Intercreditor Agreement or new
intercreditor agreement substantially in the form of the Intercreditor
Agreement attached as Exhibit D hereto; provided that such amendment or
replacement has no effect on the rights of Holders which is more adverse to
Holders than the effects of the Intercreditor Agreement.
Section 9.02. With Consent of Holders of Notes.
----------------------------------
Except as provided below in this Section 9.02, the Issuer and the
Trustee may amend or supplement this Indenture (including Sections 3.09,
4.10 and 4.15 hereof), the Notes, the Guarantees of the Notes and the
Collateral Documents may be amended or supplemented with the consent of the
Holders of at least a majority in principal amount of the Notes then
outstanding (including consents obtained in connection with a purchase of,
tender offer or exchange offer for the Notes), and, subject to Sections 6.04
and 6.07 hereof, any existing Default or Event of Default (other than a
Default or Event of Default in the payment of the principal of, premium, if
any, or interest on the Notes, except a payment default resulting from an
acceleration that has been rescinded) or compliance with any provision of
this Indenture, the Notes or any Collateral Document may be waived with the
consent of the Holders of a majority in principal amount of the then
outstanding Notes (including consents obtained in connection with a purchase
of, tender offer or exchange offer for the Notes).
Upon the request of the Issuer accompanied by a resolution of its Board
of Directors authorizing the execution of any such amended or supplemental
Indenture or amendment to Collateral Document, as the case may be, and upon
the filing with the Trustee of evidence satisfactory to the Trustee of the
consent of the Holders of Notes as aforesaid, and upon receipt by the
Trustee of the documents described in Section 7.02 hereof, the Trustee shall
join with the Issuer in the execution of such amended or supplemental
Indenture, or amended Collateral Document, as the case may be, unless such
amended or supplemental Indenture, or amendment to Collateral Document, as
the case may be, affects the Trustee's own rights, duties or immunities
under this Indenture or otherwise, in which case the Trustee may in its
discretion, but shall not be obligated to, enter into such amended or
supplemental Indenture, or amendment to Collateral Document, as the case may
be.
It shall not be necessary for the consent of the Holders of Notes under
this Section 9.02 to approve the particular form of any proposed amendment
or waiver, but it shall be sufficient if such consent approves the substance
thereof.
After an amendment, supplement or waiver under this Section becomes
effective, the Issuer shall mail to the Holders of Notes affected thereby
a notice briefly describing the amendment, supplement or waiver. Any
failure of the Issuer to mail such notice, or any defect therein, shall not,
however, in any way impair or affect the validity of any such amended or
supplemental Indenture or waiver. Subject to Sections 6.04 and 6.07 hereof,
the Holders of a majority in aggregate principal amount of the Notes then
outstanding may waive compliance in a particular instance by the Issuer with
any provision of this Indenture, the Notes, the Guarantees of the Notes, or
any Collateral Document. However, without the consent of each Holder
affected, an amendment or waiver may not (with respect to any Notes held by
a non-consenting Holder):
(a) reduce the principal amount of Notes whose Holders must
consent to an amendment, supplement or waiver;
(b) reduce the principal of or change the fixed maturity of any
Note or alter or waive any of the provisions with respect to the
redemption of the Notes, except as provided above with respect to
Sections 3.09, 4.10 and 4.15 hereof;
(c) reduce the rate of or change the time for payment of
interest, including default interest, on any Note;
(d) waive a Default or Event of Default in the payment of
principal of or premium, if any, or interest on the Notes (except a
rescission of acceleration of the Notes by the Holders of at least a
majority in aggregate principal amount of the then outstanding Notes
and a waiver of the payment default that resulted from such
acceleration);
(e) make any Note payable in money other than that stated in the
Notes;
(f) make any change in the provisions of this Indenture, the
Notes, the Guarantees of the Notes, or the Collateral Documents
relating to waivers of past Defaults or the rights of Holders of Notes
to receive payments of principal of or interest on the Notes; or
(g) make any change in Section 6.04 or 6.07 hereof or in the
foregoing amendment and waiver provisions.
Section 9.03. Compliance with Trust Indenture Act.
------------------------------------
Every amendment or supplement to this Indenture or the Notes shall be
set forth in a amended or supplemental Indenture that complies with the TIA
as then in effect.
Section 9.04. Revocation and Effect of Consents.
----------------------------------
Until an amendment, supplement or waiver becomes effective, a consent
to it by a Holder of a Note is a continuing consent by the Holder of a Note
and every subsequent Holder of a Note or portion of a Note that evidences
the same debt as the consenting Holder's Note, even if notation of the
consent is not made on any Note. However, any such Holder of a Note or
subsequent Holder of a Note may revoke the consent as to its Note if the
Trustee receives written notice of revocation before the date the waiver,
supplement or amendment becomes effective. An amendment, supplement or
waiver becomes effective in accordance with its terms and thereafter binds
every Holder.
Section 9.05. Notation on or Exchange of Notes.
----------------------------------
The Trustee may, as it deems appropriate, at the expense of the Issuer,
place an appropriate notation about an amendment, supplement or waiver on
any Note thereafter authenticated. The Issuer in exchange for all Notes may
issue and the Trustee shall authenticate new Notes that reflect the
amendment, supplement or waiver.
Failure to make the appropriate notation or issue a new Note shall not
affect the validity and effect of such amendment, supplement or waiver.
Section 9.06. Trustee to Sign Amendments, etc.
------------------------------
The Trustee shall sign any amended or supplemental Indenture authorized
pursuant to this Article 9 if the amendment or supplement does not adversely
affect the rights, duties, liabilities or immunities of the Trustee. The
Issuer may not sign an amendment or supplemental Indenture until the Board
of Directors approves it. In executing any amended or supplemental
Indenture, the Trustee shall be entitled to receive and (subject to Section
7.01) shall be fully protected in relying upon, an Officer's Certificate and
an Opinion of Counsel stating that the execution of such amended or
supplemental indenture is authorized or permitted by this Indenture.
ARTICLE 10
COLLATERAL AND SECURITY
Section 10.01. Collateral and Security Documents; Additional Collateral.
--------------------------------------------------------
(a) In order to secure the due and punctual payment of the principal
of and interest and Liquidated Damages, if any, on the Notes when and as the
same shall be due and payable, whether on an Interest Payment Date, at
maturity, on any Asset Sale Purchase Date or Change of Control Purchase
Date, or by acceleration, redemption or otherwise, and interest on the
overdue principal of and (to the extent permitted by law) interest, if any,
on the Notes and the performance of all other obligations of the Issuer and
the Guarantors to the Holders or the Trustee under this Indenture, the
Notes, the Guarantees of the Notes, and any other documents contemplated
hereby, as the case may be, the Issuer, the Guarantors and the Trustee have
simultaneously with the execution of this Indenture entered into the
Collateral Documents. The Trustee, the Issuer and the Guarantors each
hereby agree that the Trustee holds its interest in the Collateral in trust
for the benefit of the Holders pursuant to the terms of the Collateral
Documents.
(b) Promptly upon the acquisition or receipt by the Issuer or any of
the Guarantors of property and assets (whether real, personal or mixed,
tangible or intangible, and including, without limitation, property and
assets acquired or received pursuant to a merger or consolidation of any
person or persons with or into the Issuer or a Guarantor, pursuant to an
Asset Sale, pursuant to a transaction as a result of which a Guarantor is
released as provided in Section 12.04, or pursuant to a transaction as a
result of which a person becomes a Guarantor as provided in Section 12.03),
of the type that constitutes or would constitute "Trust Property" (as
defined in the Collateral Documents) or Collateral (each such item of
property and each such asset so acquired or received being referred to
herein as "After-Acquired Property"),
(i) the Issuer or the applicable Guarantor, as the case may be,
and the Trustee will enter into such amendments or supplements to the
Collateral Documents or additional Deeds of Trust (in each case in
registerable or recordable form), and other Collateral Documents, and shall
cause such amendments, supplements, mortgages, and other Collateral
Documents to be filed and recorded in all such governmental offices, as
shall be necessary in order to grant and create a valid first priority Lien
on and security interest in such After-Acquired Property in favor of the
Trustee (subject to no prior Liens except as expressly permitted by this
Indenture and the Collateral Documents), shall cause appropriate financing
statements to be filed in such governmental offices as shall be necessary
in order to perfect any security interest in such After-Acquired Property
as to which a security interest may, under the Uniform Commercial Code of
the applicable jurisdiction, be perfected by the filing of a financing
statement and, if any such After-Acquired Property consists of stock
certificates, promissory notes or other property as to which, under the
relevant Uniform Commercial Code, a security interest may be perfected by
possession, deliver such certificates, promissory notes and other property,
together with stock powers or assignments duly endorsed in blank, to the
Trustee; and
(ii) the Issuer or the applicable Guarantor, as the case may be,
shall also deliver to the Trustee the following:
(x) to the extent such After-Acquired Property consists of real
property or a leasehold interest in real property, a title insurance
policy or an endorsement to an existing title insurance policy, in the
American Land Title Insurance Loan Policy Extended Coverage form, or
its equivalent, and in an amount at least equal to the purchase price
thereof (or, if such property was not purchased or such purchase price
cannot be determined by the Issuer, the Fair Market Value thereof as
determined by the Board of Directors of the Issuer and set forth in an
Officers' Certificate delivered to the Trustee), in favor of the
Trustee insuring that the Lien of the Collateral Documents or any
additional Collateral Documents constitutes a valid and perfected
first priority Lien, subject only to such Liens as are permitted by
this Indenture and the applicable Collateral Document, on such real
property or leasehold interest in an aggregate amount equal to the
purchase price or the Fair Market Value, as applicable, of the real
property or leasehold interest and containing such endorsements and
other assurances of the type included in the title insurance policy
delivered to the Trustee on the Issue Date with respect to the real
property Collateral, together with an Officers' Certificate stating
that any Liens or such real property or leasehold interest are Liens
expressly permitted by this Indenture and the applicable Collateral
Document;
(y) any Opinions of Counsel required pursuant to Section
10.02(b) below; and
(z) evidence of payment of all filing fees, recording and
registration charges, transfer taxes and other costs and expenses,
including reasonable legal fees and disbursements of counsel for the
Trustee (and any local counsel), that may be incurred to validly and
effectively subject the After-Acquired Property to the Lien of any
applicable Collateral Document and perfect such Lien; and
(iii) The Issuer shall deliver to the Trustee an Opinion of
Counsel and an Officers' Certificate to the effect that the documents that
have been or are therewith delivered to the Trustee pursuant to this Section
10.01(b) (including any amendments, supplements, mortgages, or other
Collateral Documents referred to in paragraph (i) above) conform to the
requirements of this Indenture.
(c) Each Holder, by accepting a Note, agrees to all the terms and
provisions of the Collateral Documents, including any additional Collateral
Documents described in paragraph (b) of this Section 10.01, as the same may
be amended or supplemented from time to time pursuant to the provisions of
the Collateral Documents (including such additional Collateral Documents)
and this Indenture.
Section 10.02. Recording, Registration and Opinions.
-----------------------------------
(a) The Issuer and the Guarantors shall take or cause to be taken all
action required to perfect, maintain, preserve and protect the Lien on and
security interest in the Collateral granted by the Collateral Documents
(subject only to Liens expressly permitted by this Indenture and the
Collateral Documents), including without limitation, the filing of financing
statements, continuation statements and any instruments of further
assurance, in such manner and in such places as may be required by law fully
to preserve and protect the rights of the Holders and the Trustee under this
Indenture and the Collateral Documents to all property comprising the
Collateral. The Issuer and the Guarantors shall from time to time promptly
pay all financing and continuation statement recording, registration and/or
filing fees, charges and taxes relating to this Indenture and the Collateral
Documents, any amendments thereto and any other instruments of further
assurance required hereunder or pursuant to the Collateral Documents. The
Trustee shall not be responsible for any failure to so register, file or
record.
(b) The Issuer shall furnish to the Trustee, promptly after the
execution and delivery of this Indenture, an Opinion of Counsel either (i)
substantially to the effect that, in the opinion of such counsel, this
Indenture and the grant of the Liens on and security interests in the
Collateral intended to be made by the Collateral Documents and all other
instruments of further assurance, including, without limitation, financing
statements, have been properly recorded and filed to the extent necessary
to record or register (as the case may be), and if applicable, to perfect
the Liens on and security interests in the Collateral created by the
Collateral Documents, to the extent that, in the case of perfection of
security interests, a security interest may be perfected by filing under the
Uniform Commercial Code of the applicable jurisdiction, and reciting the
details of such action, and stating that as to the Liens and security
interests created pursuant to the Collateral Documents, such recordings,
registrations and filings are the only recordings, registrations and filings
necessary to give notice thereof and that no re-recordings, re-registrations
or refilings are necessary to maintain such notice (other than as stated in
such opinion), or (ii) to the effect that, in the opinion of such counsel,
no such action is necessary to record or register such Liens or to perfect
such security interests. The Issuer or the applicable Guarantor shall
furnish to the Trustee, at the time of execution and delivery of any
additional Collateral Documents or any amendments or supplements to existing
Collateral Documents, an Opinion of Counsel either substantially to the
effect set forth in clause (i) of the immediately preceding sentence (but
relating only to such additional Collateral Documents or any amendments or
supplements to existing Collateral Documents and the related After-Acquired
Property) or to the effect set forth in clause (ii) thereof, and to the
further effect that such additional Collateral Documents or amendments or
supplements to existing Collateral Documents, as the case may be, have been
duly authorized, executed and delivered by, and constitute the valid,
binding and enforceable obligations of the Issuer or the relevant Guarantor,
as the case may be, subject to customary exceptions. In addition, promptly
after execution and delivery of this Indenture, the Issuer shall deliver the
opinion required by Section 314(b) of the TIA.
(c) The Issuer or the applicable Guarantor shall furnish to the
Trustee, at the time of execution and delivery of this Indenture, with
respect to each Deed of Trust, (i) a policy of title insurance (or a
commitment to issue such policy) insuring (or committing to insure) the Lien
of such Deed of Trust as a valid first mortgage Lien, subject only to Liens
permitted under this Indenture or such Deed of Trust on the real property
and fixtures described therein which policy (or commitment) shall (A) be
issued by a reputable title company, (B) include such reinsurance
arrangements, if any (with provisions for direct access), as shall be
customary in the same general area and for transactions of this type and
size, (C) have been supplemented by such endorsements as are customary in
the same general area and for transactions of this type and size (and, in
the case of any Deed of Trust executed after the Issue Date, endorsements
substantially identical to those included in the title policies for the then
existing Deeds of Trust) or, where such endorsements are not available at
commercially reasonable premium costs, opinion letters of reputable
architects or other reputable professionals (including endorsements or
opinion letters on matters relating to contiguity, first loss, and so-called
comprehensive coverage over covenants and restrictions, if available) and
(D) contain only such exceptions to title as shall be Permitted Liens (each,
a "Title Policy"), (ii) the aggregate amount of all such policies shall be
not less than the principal amount of the Notes and (iii) an Officers'
Certificate stating that such title insurance policies comply with the
requirements of this subsection (c).
(d) The Issuer shall furnish to the Trustee on April 15 in each year,
beginning with April 15, 1998, an Opinion of Counsel, dated as of such date,
which complies with Section 314(b)(2) of the TIA, either (i)(x) stating
that, in the opinion of such counsel, such action has been taken with
respect to the recording, registration, filing, re-recording,
re-registration and refiling of this Indenture and all supplemental
indentures, financing statements, continuation statements and other
documents as is necessary to maintain the Lien of the Collateral Documents
and reciting with respect to the Liens on and security interests in the
Collateral the details of such action or referring to prior Opinions of
Counsel in which such details are given, and (y) stating that, based on
relevant laws as in effect on the date of such Opinion of Counsel, all
financing statements, continuation statements and other documents have been
executed and filed that are necessary as of such date and during the
succeeding 24 months fully to maintain the Liens and security interests of
the Holders and the Trustee hereunder and under the Collateral Documents
with respect to the Collateral; provided that if there is a required filing
of a continuation statement within such 24 month period and such
continuation statement is not effective if filed at the time of the opinion,
such opinion may so state and in that case the Issuer shall cause a
continuation statement to be timely filed so as to maintain such Liens and
security interests and shall provide a further Opinion of Counsel to the
effect of this clause (i) upon the filing of the relevant continuation
statement; or (ii) stating that, in the opinion of such counsel, no such
action is necessary to maintain such Liens or security interests.
Section 10.03. Release of Collateral.
----------------------
(a) The Trustee shall not at any time release Collateral from the
Liens created by this Indenture and the Collateral Documents unless such
release is in accordance with the provisions of this Indenture and the
Collateral Documents.
(b) Anything herein to the contrary notwithstanding, at any time when
an Event of Default shall have occurred and be continuing, no release of
Collateral pursuant to the provisions of this Indenture or the Collateral
Documents shall be effective as against the Holders.
(c) The release of any Collateral from the Lien of the Collateral
Documents shall not be deemed to impair the security under this Indenture
in contravention of the provisions hereof if and to the extent the
Collateral is released pursuant to this Indenture and the Collateral
Documents. To the extent applicable, the Issuer shall cause TIA Section
314(d) relating to the release of property from the Lien of the Collateral
Documents and relating to the substitution therefor of any property to be
subjected to the Lien of the Collateral Documents to be complied with. Any
certificate or opinion required by TIA Section 314(d) may be made by an
Officer of the Issuer, except in cases where TIA Section 314(d) requires
that such certificate or opinion be made by an independent person, which
person shall be an independent engineer, appraiser or other expert selected
or approved by the Trustee in the exercise of reasonable care.
Section 10.04. Possession and Use of Collateral.
--------------------------------
Subject to and in accordance with the provisions of this Indenture and
the Collateral Documents, so long as no Event of Default shall have occurred
and be continuing, the Issuer and the Guarantors shall have the right to
remain in possession and retain exclusive control of and to exercise all
rights with respect to the Collateral (other than Trust Monies held by the
Trustee, other than monies or U.S. Government Obligations deposited pursuant
to Article 8, and other than as set forth in the Collateral Documents and
this Indenture), to operate, manage, develop, lease, use, consume and enjoy
the Collateral (other than Trust Monies held by the Trustee, other than
monies and U.S. Government Obligations deposited pursuant to Article 8 and
other than as set forth in the Collateral Documents and this Indenture), to
alter or repair any Collateral consisting of machinery or equipment so long
as such alterations and repairs do not diminish the value thereof or impair
the Lien of the Collateral Documents thereon and to collect, receive, use,
invest and dispose of the reversions, remainders, interest, rents, lease
payments, issues, profits, revenues, proceeds and other income thereof.
Section 10.05. Specified Releases of Collateral.
--------------------------------
(a) SATISFACTION AND DISCHARGE; DEFEASANCE. The Issuer and the
Guarantors shall be entitled to obtain a full release of all of the
Collateral from the Liens of this Indenture and of the Collateral Documents
upon compliance with the conditions precedent set forth in Article 8 for
Legal Defeasance or Covenant Defeasance. Upon delivery by the Issuer to the
Trustee of an Officers' Certificate and an Opinion of Counsel, each to the
effect that such conditions precedent have been complied with (and which may
be the same Officers' Certificate and Opinion of Counsel required by Article
8), together with such documentation, if any, as may be required by the TIA
(including, without limitation, Section 314(d) of the TIA) prior to the
release of such Collateral, the Trustee shall forthwith take all necessary
action (at the request of and the expense of the Issuer) to release and
reconvey to the Issuer and the applicable Guarantors without recourse all
of the Collateral, and shall deliver such Collateral in its possession to
the Issuer and the applicable Guarantors including, without limitation, the
execution and delivery of releases and satisfactions wherever required.
(b) DISPOSITIONS OF COLLATERAL PERMITTED BY SECTION 4.10. The Issuer
and the Guarantors, as the case may be, shall be entitled to obtain a
release of, and the Trustee shall release, items of Collateral (the
"Released Interests") subject to an Asset Sale upon compliance with the
conditions precedent that the Issuer shall have delivered to the Trustee the
following:
(i) A Company Order requesting release of Released Interests (a
"Company Order"), such Company Order (A) specifically describing the
proposed Released Interests, (B) specifying the Fair Market Value of
such Released Interests on a date within 60 days of the Company Order
(the "Valuation Date"), (C) stating that the consideration to be
received is at least equal to the Fair Market Value of the Released
Interests, (D) stating that the release of such Released Interests
will not impair the value of the remaining Collateral or interfere
with or impede the Trustee's ability to realize the value of the
remaining Collateral and will not impair the maintenance and operation
of the remaining Collateral, (E) confirming the sale of, or an
agreement to sell, such Released Interests in a bona fide sale to a
person that is not an Affiliate of the Issuer or, in the event that
such sale is to a person that is such an Affiliate, confirming that
such sale is being made in accordance with Section 4.11, (F)
certifying that such Asset Sale complies with the terms and conditions
of this Indenture, including, without limitation, Section 4.10 hereof
and (G) in the event that there is to be a substitution of property
for the Collateral subject to the Asset Sale, specifying the property
intended to be substituted for the Collateral to be disposed of;
(ii) An Officers' Certificate certifying that (A) such sale
covers only the Released Interests and/or property which is not
Collateral and complies with the terms and conditions of this
Indenture, including, without limitation, Section 4.10 hereof, (B) all
Collateral Proceeds from the sale of any of the Released Interests
will be deposited in the Collateral Account, and all Net Proceeds from
the sale of any of the Released Interests (and any other property
which is not Collateral) will be applied pursuant to Section 4.10, (C)
there is not and will not be a Default or Event of Default in effect
or continuing on the date thereof, the Valuation Date or the date of
such Asset Sale, (D) the release of the Collateral will not result in
a Default or Event of Default hereunder and (E) all conditions
precedent to such release have been complied with;
(iii) All documentation required by the TIA (including,
without limitation, Section 314(d) of the TIA), if any, prior to the
release of Collateral by the Trustee, and, in the event there is to be
a substitution of property for the Collateral subject to the Asset
Sale, all documentation required by the TIA to effect the substitution
of such new Collateral and to subject such new Collateral to the Lien
of the relevant Collateral Documents, and all documents required by
Section 10.01 hereof; and
(iv) An Opinion of Counsel stating that the documents that have
been or are therewith delivered to the Trustee in connection with such
release conform to the requirements of this Indenture and that all
conditions precedent herein provided for relating to such release have
been complied with.
Upon compliance by the Issuer with the conditions precedent set forth
above, the Trustee shall cause to be released and reconveyed to the Issuer
or the applicable Guarantor the Released Interest without recourse by
executing a release in the form provided by the Issuer or the applicable
Guarantor.
(c) EMINENT DOMAIN, EXPROPRIATION AND OTHER GOVERNMENTAL TAKINGS.
The Issuer and the Guarantors, as the case may be, shall be entitled to
obtain a release of, and the Trustee shall release, items of Collateral
taken by eminent domain or expropriation or sold pursuant to the exercise
by the United States of America or any State, municipality, province or
other governmental authority thereof of any right which it may then have to
purchase, or to designate a purchaser or to order a sale of, all or any part
of the Collateral, upon compliance with the conditions precedent that the
Issuer shall have delivered to the Trustee the following:
(i) An Officers' Certificate of the Issuer certifying that (A)
such Collateral has been taken by eminent domain or expropriation and
the amount of the award therefor, or that such property has been sold
pursuant to a right vested in the United States of America, or a
State, municipality, province or other governmental authority thereof
to purchase, or to designate a purchaser, or order a sale of such
Collateral and the amount of the proceeds of such sale, and (B) all
conditions precedent to such release have been complied with;
(ii) Cash equal to the amount of the award for such property or
the proceeds of such sale, shall be deposited with the Trustee in the
Collateral Account and held as Trust Monies subject to the disposition
thereof pursuant to Article 11 hereof; and
(iv) All documentation required by the TIA (including, without
limitation, Section 314(d) of the TIA), if any, prior to the release
of Collateral by the Trustee.
Upon compliance by the Issuer with the conditions precedent set forth
above, the Trustee shall cause to be released and reconveyed to the Issuer
or the applicable Guarantor without recourse the aforementioned items of
Collateral by executing a release in the form provided by the Issuer or the
applicable Guarantor.
(d) RELEASED PROPERTY. So long as no Default or Event of Default
shall have occurred and be continuing or would result therefrom, the Issuer
(acting on behalf of itself or any Guarantor) shall be entitled to obtain
a release of, and the Trustee shall release, Collateral (other than Trust
Monies and other than monies and U.S. Government Obligations deposited
pursuant to Article 8) specified by the Issuer ("Released Property")
provided (i) the Fair Market Value of the Released Property in any single
transaction, or series of related transactions, shall not exceed $100,000,
and (ii) prior to granting such release, the Issuer shall provide the
Trustee with the following:
(i) A Company Order requesting release of Released Property,
such Company Order (A) specifically describing the proposed Released
Property, (B) specifying the Fair Market Value of such Released
Property on a date within 60 days of the Company Order, (C) stating
that the release of such Released Property will not interfere with or
impede the Trustee's ability to realize the value of the remaining
Collateral and will not impair the maintenance and operation of the
remaining Collateral and (D) stating that the Fair Market Value of
such Released Property does not exceed $100,000;
(ii) An Officers' Certificate certifying that no Default or
Event of Default has occurred and is continuing or will occur as a
result of the release of the Released Property, and all conditions
precedent to such release have been complied with; and
(iii) All documentation required by the TIA (including,
without limitation, Section 314(d) of the TIA), if any, prior to the
release of the Released Property by the Trustee.
Upon compliance by the Issuer with the conditions precedent set forth
above, the Trustee shall cause to be released and reconveyed to the Issuer
without recourse the aforementioned items of Collateral by executing a
release in the form provided by the Issuer.
Section 10.06. Disposition of Collateral Without Release.
-----------------------------------------
Notwithstanding the provisions of Section 10.05, so long as no Default
or Event of Default shall have occurred and be continuing or would result
therefrom, the Issuer and the Guarantors may, without any prior release or
consent by the Trustee, conduct ordinary course activities in respect of the
Collateral which do not individually or in the aggregate adversely affect
the value of the Collateral, including selling or otherwise disposing of,
in any single transaction or series of related transactions, any property
subject to the Lien of this Indenture or the Collateral Documents which has
become worn out or obsolete and which either has an aggregate Fair Market
Value of $100,000 or less or which is replaced by property of substantially
equivalent or greater value which becomes subject to the Lien of the
Collateral Documents as After-Acquired Property; abandoning, terminating,
cancelling, releasing or making alterations in or substitutions of any
leases or contracts subject to the Lien of this Indenture or any of the
Collateral Documents; surrendering or modifying any franchise, license or
permit subject to the Lien of this Indenture or any of the Collateral
Documents which it may own or under which it may be operating; altering,
repairing, replacing, changing the location or position of and adding to its
structures, machinery, systems, equipment, fixtures, and appurtenances,
provided, however, that no change in the location of any such Collateral
subject to the Lien of any of the Collateral Documents shall be made which
(1) removes such property into a jurisdiction in which any instrument
required by law to preserve the Lien of any of the Collateral Documents on
such property, including all necessary financing statements and continuation
statements, has not been recorded, registered or filed in the manner
required by law to preserve the Lien of and security interest in any of the
Collateral Documents on such property, (2) does not comply with the terms
of this Indenture and the Collateral Documents or (3) otherwise impairs the
Lien of the Collateral Documents; demolishing, dismantling, tearing down or
scrapping any Collateral or abandoning any thereof if, in the good faith
opinion of the Board of Directors of the Issuer (as evidenced by a Board
Resolution delivered to the Trustee if it involves Collateral having a Fair
Market Value in excess of $100,000) such demolition, dismantling, tearing
down, scrapping or abandonment is in the best interests of the Issuer, will
not interfere with or impede the Trustee's ability to realize the value of
the remaining Collateral and will not impair the maintenance and operation
of the remaining Collateral, and the Fair Market Value and utility of the
Collateral as an entirety, and the security for the Notes, will not thereby
be otherwise impaired; granting a nonexclusive license of any intellectual
property; and abandoning intellectual property which has become obsolete and
not used in the business.
Section 10.07. Form and Sufficiency of Release.
-------------------------------
In the event that the Issuer or any Guarantor has sold, exchanged, or
otherwise disposed of or proposes to sell, exchange or otherwise dispose of
any portion of the Collateral that under the provisions of Section 10.05 or
10.06 may be sold, exchanged or otherwise disposed of by the Issuer or any
Guarantor, and the Issuer or such Guarantor requests the Trustee to furnish
a written disclaimer, release or quitclaim of any interest in such property
under this Indenture, the applicable Guarantee of the Notes and the
Collateral Documents, upon being satisfied that the Issuer or such Guarantor
is selling, exchanging or otherwise disposing of the Collateral in
accordance with the provisions of Section 10.05 or 10.06, the Trustee shall
execute, acknowledge and deliver to the Issuer or such Guarantor such an
instrument in the form provided by the Issuer, and providing for release
without recourse, promptly after satisfaction of the conditions set forth
herein for delivery of any such release and shall take such other action as
the Issuer or such Guarantor may reasonably request and is necessary to
effect such release. Notwithstanding the preceding sentence, all purchasers
and grantees of any property or rights purporting to be released shall be
entitled to rely upon any release executed by the Trustee hereunder as
sufficient for the purpose of this Indenture and as constituting a good and
valid release of the property therein described from the Lien of this
Indenture and of the Collateral Documents.
Section 10.08. Purchaser Protected.
---------------------
No purchaser or grantee of any property or rights purporting to be
released shall be bound to ascertain the authority of the Trustee to execute
the release or to inquire as to the existence of any conditions herein
prescribed for the exercise of such authority.
Section 10.09. Authorization of Actions To Be Taken by the
Trustee Under the Collateral Documents.
---------------------------------------------
Subject to the provisions of the Collateral Documents:
(a) the Trustee may, in its sole discretion and without the consent
of the Holders, take all actions it deems necessary or appropriate in order
to (i) enforce any of the terms of the Collateral Documents and (ii) collect
and receive any and all amounts payable in respect of the obligations of the
Issuer and the Guarantors hereunder and under the Collateral Documents; and
(b) the Trustee shall have power to institute and to maintain such
suits and proceedings as it may deem expedient to prevent any impairment of
the Collateral by any act that may be unlawful or in violation of the
Collateral Documents or this Indenture, and such suits and proceedings as
the Trustee may deem expedient to preserve or protect its interests and the
interests of the Holders in the Collateral (including the power to institute
and maintain suits or proceedings to restrain the enforcement of or
compliance with any legislative or other governmental enactment, rule or
order that may be unconstitutional or otherwise invalid if the enforcement
of, or compliance with, such enactment, rule or order would impair the
security interest thereunder or be prejudicial to the interests of the
Holders or of the Trustee).
Section 10.10. Authorization of Receipt of Funds by the Trustee
Under the Collateral Documents.
------------------------------------------------
The Trustee is authorized to receive any funds for the benefit of
Holders distributed under the Collateral Documents, to apply such funds as
provided in this Indenture and the Collateral Documents, and to make further
distributions of such funds to the Holders in accordance with the provisions
of Article 11 and the other provisions of this Indenture.
ARTICLE 11
APPLICATION OF TRUST MONIES
Section 11.01. Collateral Account.
------------------
On the Issue Date there shall be established and, at all times
hereafter until this Indenture shall have terminated, there shall be
maintained with the Trustee the Collateral Account. The Collateral Account
shall be established and maintained by the Trustee at its Corporate Trust
Office. All Trust Monies which are received by the Trustee shall be
deposited in the Collateral Account and thereafter shall be held by the
Trustee for the benefit of the Holders as a part of the Collateral and, upon
any entry upon or sale or other disposition of the Collateral or any part
thereof pursuant to any of the Collateral Documents, said Trust Monies shall
be applied in accordance with Section 4.10 and may also be applied by the
Trustee to cure any Event of Default; but prior to any such entry, sale or
other disposition, all or any part of the Trust Monies may be withdrawn, and
shall be released, paid or applied by the Trustee in accordance with the
terms of this Article.
Section 11.02. Withdrawal of Insurance Proceeds and Condemnation Awards.
--------------------------------------------------------
To the extent that any Trust Monies consist of either (a) Net Insurance
Proceeds or (b) condemnation awards, such Trust Monies may be withdrawn by
the Issuer and shall be paid by the Trustee upon a Company Request delivered
to the Trustee to reimburse the Issuer or the applicable Guarantor for
expenditures made, or to pay costs incurred, by the Issuer or such Guarantor
in connection with the repair, rebuilding or replacement of the Collateral
destroyed, damaged or taken, upon receipt by the Trustee of the following:
(a) An Officers' Certificate, dated not more then 30 days prior to
the date of the application for the withdrawal and payment of such Trust
Monies setting forth:
(i) that expenditures have been made, or costs incurred by the
Issuer or such Guarantor, as the case may be, in a specified amount in
connection with certain repairs, rebuildings and replacements of the
Collateral, which shall be briefly described, and stating the Fair
Market Value thereof to the Issuer or such Guarantor at the date of
the acquisition thereof by the Issuer or such Guarantor;
(ii) that no part of such expenditures or costs has been or is
being made the basis for the withdrawal of any Trust Monies in any
previous or then pending application pursuant to this Section 11.02;
(iii) that no part of such expenditures or costs has been
paid out of either the proceeds of insurance upon any part of the
Collateral not required to be paid to the Trustee under the Collateral
Documents or any award for or the proceeds from any of the Collateral
being taken not required to be paid to the Trustee under Section
10.05(c), as the case may be;
(iv) that there is no outstanding Indebtedness, other than costs
for which payment is being requested, known to the Issuer, after due
inquiry, for the purchase price or construction of such repairs,
rebuildings or replacements, or for labor, wages, materials or
supplies in connection with the making thereof, which, if unpaid,
might become the subject of a vendor's, mechanics', laborers',
materialmen's, statutory or other similar Lien upon any such repairs,
rebuildings or replacement, which Lien might, in the opinion of the
signers of such Officers' Certificate, materially impair the security
afforded by such repairs, rebuildings or replacements;
(v) that the property to be repaired, rebuilt or replaced is
necessary or desirable in the conduct of the Issuer's or such
Guarantor's business;
(vi) that the Issuer or such Guarantor has title to such
repairs, rebuildings and replacements that is substantially similar to
its title to the property destroyed, damaged or taken and that any
Liens upon such repairs, rebuildings and replacements are expressly
permitted by this Indenture and the applicable Collateral Documents;
(vii) that no Default or Event of Default shall have
occurred and be continuing; and
(ix) that all conditions precedent herein provided for relating
to such withdrawal and payment have been complied with.
(b) All documentation required under the TIA (including, without
limitation, Section 314(d) of the TIA);
(c) All documentation necessary to subject such repairs, rebuildings
or replacements to a valid first priority Lien and security interest in
favor of the Trustee (or, in the case of property subject to a Deed of
Trust, the Trustee or another trustee under such Deed of Trust) for the
benefit of the Holders pursuant to the Collateral Documents, including,
without limitation, all instruments, agreements, certificates, Opinions of
Counsel and documents required by Section 10.01; and
(d) An Opinion of Counsel substantially stating:
(i) that the instruments that have been or are therewith
delivered to the Trustee conform to the requirements of this Indenture
and the other Collateral Documents, and that, upon the basis of such
Company Request and the accompanying documents specified in this
Section 11.02, all conditions precedent herein provided for relating
to such withdrawal and payment have been complied with, and the Trust
Monies whose withdrawal is then requested may be paid over under this
Section 11.02;
(ii) that the relevant Collateral Documents create a valid,
binding and enforceable Lien on and security interest in such repairs,
rebuildings and replacements in favor of the Trustee in favor of the
Holders and, to the extent that a security interest in any such
property may be perfected under the relevant Uniform Commercial Code,
a perfected security interest in such property; and
(iii) that all the Issuer's or such Guarantor's right, title
and interest in and to said repairs, rebuilding or replacements, or
combination thereof are then subject to the Lien of this Indenture and
the relevant Collateral Documents.
Upon compliance with the foregoing provisions of this Section 11.02 and
Section 11.01, the Trustee shall, upon Company Request, pay an amount of
Trust Monies of the character aforesaid equal to the amount of the
expenditures or costs stated in the Officers' Certificate required by clause
(i) of paragraph (a) of this Section 11.02, or the Fair Market Value to the
Issuer or the applicable Guarantor of such repairs, rebuildings and
replacements stated in such Officers' Certificate (or in an Independent
Appraiser's or Independent Financial Advisor's certificate, if required by
the TIA), whichever is less; provided, however, that notwithstanding the
above, so long as no Default or Event of Default shall have occurred and be
continuing, in the event that any Net Insurance Proceeds or Net Awards for
such property or proceeds of such sale do not exceed $25,000 and, in the
good faith estimate of the Issuer, such destruction or damage resulting in
such Net Insurance Proceeds or such taking or sale resulting in such Net
Awards does not detrimentally affect the value or use of the applicable
Collateral in any material respect, upon delivery to the Trustee of an
Officers' Certificate to such effect and compliance with Section 10.01, the
Trustee shall release to the Issuer or the applicable Guarantor such Net
Insurance Proceeds or Net Awards for such property or proceeds of such sale,
free of the Lien hereof and of the Collateral Documents.
Section 11.03. Withdrawal of Net Cash Proceeds to Fund an Asset Sale Offer.
----------------------------------------------------------
To the extent that any Trust Monies consist of Collateral Proceeds
received by the Trustee pursuant to the provisions of Section 4.10 hereof
and an Asset Sale Offer has been made in accordance therewith, such Trust
Monies may be withdrawn by the Issuer and shall be paid by the Trustee to
the Paying Agent for application in accordance with Section 4.10 upon a
Company Order to the Trustee and upon receipt by the Trustee of the
following:
(a) An Officers' Certificate, dated not more than five days prior to
the Asset Sale Purchase Date stating:
(i) that no Default or Event of Default shall have occurred and
be continuing;
(ii) (x) that such Trust Monies constitute Collateral Proceeds
or are deemed, pursuant to Section 4.10, to constitute Collateral
Proceeds, (y) that pursuant to and in accordance with Section 4.10,
the Issuer has made an Asset Sale Offer and (z) the Available Amount
to be applied to the repurchase of the Notes pursuant to the Asset
Sale Offer;
(iii) the Asset Sale Purchase Date; and
(iv) that all conditions precedent and covenants herein provided
for relating to such application of Trust Monies have been complied
with;
(b) All documentation, if any, required under Section 314(d) of the
TIA; and
Upon compliance with the foregoing provisions of this Section 11.03,
the Trustee shall apply the Trust Monies as directed and specified by such
Company Order, subject to Section 4.10.
Section 11.04. Withdrawal of Trust Monies for Investment in
Replacement Assets.
---------------------------------------------
In the event the Issuer intends to reinvest Collateral Proceeds of an
Asset Sale in Replacement Assets (the "Released Trust Monies"), such
Collateral Proceeds constituting Trust Monies may be withdrawn by the Issuer
and shall be paid by the Trustee to the Issuer upon a Company Order to the
Trustee and upon receipt by the Trustee of the following:
(a) a notice signed by the Issuer (each, a "Trust Monies Release
Notice"), which shall (i) refer to this Section 11.04, (ii) contain all
documents referred to below, (iii) describe with particularity the Released
Trust Monies, (iv) describe with particularity the Replacement Assets to be
invested in with respect to the Released Trust Monies and (v) be accompanied
by a counterpart of the instruments proposed to give effect to the release
fully executed and acknowledged (if applicable) by all parties thereto other
than the Trustee;
(b) An Officers' Certificate certifying that (i) such Trust Monies
constitute Net Proceeds, (ii) the release of the Released Trust Monies
complies with the terms and conditions of this Indenture, (iii) there is no
Default or Event of Default in effect or continuing on the date thereof,
(iv) the release of the Released Trust Monies will not result in a Default
or Event of Default hereunder and (v) all conditions precedent to such
release have been complied with;
(c) All documentation required under the TIA (including, without
limitation, Section 314(d) of the TIA);
(d) All documentation necessary to subject such Replacement Assets
to a valid first priority Lien and security interest (subject only to Liens
expressly permitted by this Indenture or the relevant Collateral Documents)
in favor of the Trustee for the benefit of the Holders pursuant to the
Collateral Documents, including, without limitation, all instruments,
agreements, Opinions of Counsel, certificates and other documents required
by Section 10.01; and
(e) An Opinion of Counsel stating:
(i) that the documents that have been or are therewith
delivered to the Trustee in connection with an investment in
Replacement Assets conform to the requirements of this Indenture and
that all conditions precedent herein provided for relating to such
application of Trust Monies have been complied with; and
(ii) to the extent that such Replacement Assets were acquired
with Collateral Proceeds, the relevant Collateral Documents create a
valid, binding and enforceable Lien on and security interest in such
Replacement Assets in favor of the Trustee for the benefit of the
Holders and, to the extent that a security interest in any such
Replacement Assets may be perfected under the relevant Uniform
Commercial Code, a perfected security interest in such property.
Upon compliance with the foregoing provisions, the Trustee shall apply
the Released Trust Monies as directed and specified by the Issuer.
Section 11.05. Investment of Trust Monies.
---------------------------
The Trustee shall be entitled to apply any Trust Monies to cure any
Event of Default. So long as no Default or Event of Default shall have
occurred and is continuing, all or any part of any Trust Monies held by the
Trustee shall from time to time be invested or reinvested by the Trustee in
any Cash Equivalents pursuant to a Company Order, which shall specify the
Cash Equivalents in which such Trust Monies shall be invested and shall
certify that such investments constitute Cash Equivalents and the Trustee
shall sell any such Cash Equivalent only upon receipt of a Company Order
specifying the particular Cash Equivalent to be sold. So long as no Default
or Event of Default occurs and is continuing, any interest or dividends
accrued, earned or paid on such Cash Equivalents (in excess of any accrued
interest or dividends paid at the time of purchase) that may be received by
the Trustee shall be forthwith paid to the Issuer. Such Cash Equivalents
shall be held by the Trustee as a part of the Collateral, subject to the
same provisions hereof as the cash used by it to purchase such Cash
Equivalents.
The Trustee shall not be liable or responsible for any loss resulting
from such investments or sales except only for its own negligent action, its
own negligent failure to act or its own willful misconduct in complying with
this Section 11.05.
ARTICLE 12
GUARANTEES
Section 12.01 Guarantees.
----------
Subject to the provisions of this Article 12, each Guarantor, jointly
and severally, hereby unconditionally guarantees to each Holder of a Note
authenticated and delivered by the Trustee and to the Trustee and its
successors and assigns, that: (a) the principal of, and premium, if any,
and interest and Liquidated Damages, if any, on the Notes shall be duly and
punctually paid in full when due, whether at maturity, by acceleration or
otherwise, and interest on overdue principal, and premium, if any, and (to
the extent permitted by law) interest on any interest, if any, on the Notes
and all other obligations of the Issuer to the Holders or the Trustee
hereunder or under the Notes (including fees and expenses) shall be promptly
paid in full or performed, all in accordance with the terms hereof; and (b)
in case of any extension of time of payment or renewal of any Notes or any
of such other obligations, the same shall be promptly paid in full when due
or performed in accordance with the terms of the extension or renewal,
whether at stated maturity, by acceleration or otherwise. Failing payment
when due of any amount so guaranteed or failing performance of any other
obligation of the Issuer to the Holders, for whatever reason, each Guarantor
shall be obligated to pay, or to perform or to cause the performance of, the
same immediately. An Event of Default under this Indenture or the Notes
shall constitute an event of default under this Guarantee, and shall entitle
the Trustee or the Holders of Notes to accelerate the obligations of each
Guarantor hereunder in the same manner and to the same extent as the
obligations of the Issuer. Each Guarantor hereby agrees that its
obligations hereunder shall be unconditional, irrespective of the validity,
regularity or enforceability of the Notes or this Indenture, the absence of
any action to enforce the same, any waiver or consent by any Holder of the
Notes with respect to any thereof, the entry of any judgment against the
Issuer, any action to enforce the same or any other circumstance which might
otherwise constitute a legal or equitable discharge or defense of a
Guarantor. Each Guarantor hereby waives and relinquishes: (a) any right
to require the Trustee, the Holders or the Issuer (each, a "Benefitted
Party") to proceed against the Issuer, the Subsidiaries or any other Person
or to proceed against or exhaust any security held by a Benefitted Party at
any time or to pursue any other remedy in any secured party's power before
proceeding against the Guarantors or any of them; (b) any defense that may
arise by reason of the incapacity, lack of authority, death or disability
of any other Person or Persons or the failure of a Benefitted Party to file
or enforce a claim against the estate (in administration, bankruptcy or any
other proceeding) of any other Person or Persons; (c) demand, protest and
notice of any kind (except as expressly required by this Indenture),
including but not limited to notice of the existence, creation or incurring
of any new or additional Indebtedness or obligation or of any action or
non-action on the part of the Guarantors, the Issuer, the Subsidiaries, any
Benefitted Party, any creditor of the Guarantors, the Issuer or the
Guarantors or on the part of any other Person whomsoever in connection with
any obligations the performance of which are hereby guaranteed; (d) any
defense based upon an election of remedies by a Benefitted Party, including
but not limited to an election to proceed against the Guarantors for
reimbursement; (e) any defense based upon any statute or rule of law which
provides that the obligation of a surety must be neither larger in amount
nor in other respects more burdensome than that of the principal; (f) any
defense arising because of a Benefitted Party's election, in any proceeding
instituted under the Bankruptcy Law, of the application of Section
1111(b)(2) of the Bankruptcy Code; and (g) any defense based on any
borrowing or grant of a security interest under Section 364 of the
Bankruptcy Code. The Guarantors hereby covenant that the Guarantees of the
Notes shall not be discharged except by payment in full of all principal,
premium, if any, and interest on the Notes and all other costs provided for
under this Indenture, or as provided in Section 8.01.
Each Guarantor hereby irrevocably waives any defenses it may now or
hereafter have in any way relating to any or all of the following: (a) any
lack of validity or enforceability of this Indenture, any Note or Collateral
Document, or any agreement or instrument relating thereto; (b) any change
in the time, manner or place of payment of, or in any other term of, all or
any of the obligations guaranteed hereby or any other obligations of any
other Person under this Indenture, any Note or any Collateral Document, or
any other amendment or waiver of or any consent to, or departure from the
terms hereof or thereof, including, without limitation, any increase in the
obligations guaranteed hereby resulting from the extension of additional
credit to the Issuer or any of its Subsidiaries or otherwise; (c) any
taking, exchange, release, or non-perfection of any Collateral, or any
taking, release or amendment or waiver of or consent to departure from any
other guarantee, for all or any of the obligations guaranteed hereby; (d)
any manner of application of Collateral, or proceeds thereof, to all or any
of the obligations guaranteed hereby, or any manner of sale or other
disposition of any Collateral for all or any of the obligations guaranteed
hereby or any other obligations of any other Person under this Indenture,
any Note or any Collateral Document, or any other assets of the Issuer or
any of its Subsidiaries; (e) any change, restructuring or termination of the
corporate structure or existence of the Issuer or any of its Subsidiaries;
(f) any failure of any Benefitted Party to disclose to the Issuer or any
Guarantor any information relating to the financial condition, operations,
properties or prospects of the Issuer or any other Guarantor now or in the
future known to any Benefitted Party (the Issuer and each Guarantor hereby
waiving any duty on the part of the Benefitted Parties to disclose such
information); or (g) any other circumstance (including, without limitation,
any statute of limitations) or any existence of or reliance on any
representation by the Trustee or any other Benefitted Party that might
otherwise constitute a defense available to, or a discharge of, the Issuer,
any Guarantor or any other guarantor or surety.
Each Guarantor hereby waives promptness, diligence, notice of
acceptance and any other notice with respect to any of the obligations
guaranteed hereby and its Guarantee and any requirement that the Trustee or
any other Benefitted Party protect, secure, perfect or insure any Lien or
any property subject thereto or exhaust any right or take any action against
the Issuer or any other Person or any Collateral.
Each Guarantor hereby waives any right to revoke its Guarantee, and
acknowledges that its Guarantee of the Notes is continuing in nature and
applies to all obligations of the Issuer hereunder and under the Notes,
whether existing now or in the future.
Each Guarantor acknowledges that the Trustee may, without notice to or
demand upon such Guarantor and without affecting the liability of such
Guarantor under its Guarantee, foreclose under any Deed of Trust by
nonjudicial sale, and each Guarantor hereby waives all rights and defenses
(including, without limitation, any defense to the recovery by the Trustee
and the other Benefitted Parties against any Guarantor of any deficiency
after such nonjudicial sale and any defense or benefits that may be afforded
by Sections 580a and 580d of the California Code of Civil Procedure or any
statute or law in any other jurisdiction having similar effect) arising out
of an election of remedies by the Trustee or any other Benefitted Party,
even though that election of remedies, such as a nonjudicial foreclosure
with respect to security for an obligation guaranteed by its Guarantee, has
destroyed such Guarantor's rights of subrogation and reimbursement against
the principal by the operation of Section 580d of the California Code of
Civil Procedure or otherwise.
Each Guarantor acknowledges that it will receive substantial direct and
indirect benefits from the financing arrangements contemplated hereby and
that the waivers set forth in this Article Twelve are knowingly made in
contemplation of such benefits.
If any Holder or the Trustee is required by any court or otherwise to
return to either the Issuer or the Guarantors, or any trustee or similar
official acting in relation to either the Issuer or the Guarantors, any
amount paid by the Issuer or the Guarantors to the Trustee or such Holder,
the Guarantees of the Notes, to the extent theretofore discharged, shall be
reinstated in full force and effect. Each of the Guarantors agrees that it
shall not be entitled to any right of subrogation in relation to the Holders
in respect of any obligations guaranteed hereby until payment in full of all
obligations guaranteed hereby. Each Guarantor agrees that, as between it,
on the one hand, and the Holders of Notes and the Trustee, on the other
hand, (x) the maturity of the obligations guaranteed hereby may be
accelerated as provided in Article 6 hereof for the purposes hereof,
notwithstanding any stay, injunction or other prohibition preventing such
acceleration in respect of the obligations guaranteed hereby, and (y) in the
event of any acceleration of such obligations as provided in Article 6
hereof, such obligations (whether or not due and payable) shall forthwith
become due and payable by such Guarantor for the purpose of its Guarantee.
Section 12.02 Execution and Delivery of Guarantees.
-------------------------------------
To evidence the Guarantees set forth in Section 12.01 hereof, each of
the Guarantors agrees that a notation of the Guarantees substantially in the
form included in Exhibit A hereto shall be endorsed on each Note
authenticated and delivered by the Trustee and that this Indenture shall be
executed on behalf of the Guarantors by the Chairman of the Board, any Vice
Chairman, the President or one of the Vice Presidents of the Guarantors,
under a facsimile of its seal reproduced on this Indenture and attested to
by an Officer other than the Officer executing this Indenture.
Each of the Guarantors agree that the Guarantees set forth in this
Article 12 will remain in full force and effect and apply to all the Notes
notwithstanding any failure to endorse on each Note a notation of the
Guarantees of the Notes.
If an Officer whose facsimile signature is on a Note no longer holds
that office at the time the Trustee authenticates the Note on which the
Guarantees are endorsed, the Guarantees of Notes shall be valid
nevertheless.
The delivery of any Note by the Trustee, after the authentication
thereof hereunder, shall constitute due delivery of the Guarantees set forth
in this Indenture on behalf of the Guarantors.
Section 12.03 Guarantors May Consolidate, etc., on Certain Terms.
--------------------------------------------------
(a) Nothing contained in this Indenture or in the Notes shall prevent
any consolidation or merger of a Guarantor with or into the Issuer or
another Guarantor, or shall prevent the transfer of all or substantially all
of the assets of a Guarantor to the Issuer or another Guarantor. Upon any
such consolidation, merger, transfer or sale, the Guarantee of such
Guarantor (but not of any surviving Guarantor) shall no longer have any
force or effect.
(b) Each Guarantor shall not, in a single transaction or series of
related transactions, consolidate or merge with or into (whether or not such
Guarantor is the surviving corporation), or sell, assign, transfer, lease,
convey or otherwise dispose of all or substantially all of its properties
or assets in one or more related transactions, to another corporation,
Person or entity other than the Issuer or another Guarantor unless: (i)
subject to the provisions of Section 12.04, the Person formed by or
surviving any such consolidation or merger (if other than such Guarantor)
assumes all the obligations of such Guarantor pursuant to a supplemental
indenture and appropriate Collateral Documents in form and substance
reasonably satisfactory to the Trustee; (ii) immediately after giving effect
to such transaction, no Default or Event of Default exists; (iii) such
Guarantor, or any Person formed by or surviving any such consolidation or
merger, would have Consolidated Net Worth (immediately after giving effect
to such transaction), equal to or greater than the Consolidated Net Worth
of such Guarantor immediately preceding the transaction; (iv) the Issuer
would be permitted by virtue of the Issuer's pro forma Fixed Charge Coverage
Ratio, immediately after giving effect to such transaction, to incur at
least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage
Ratio test set forth in Section 4.09(a); (v) the Collateral owned by such
Guarantor (in the case of a merger or consolidation) or the Collateral
transferred to the surviving Person (in the case of a transfer of assets)
(A) shall continue to constitute Collateral under this Indenture and the
Collateral Documents, (2) shall be subject to a Lien in favor of the Trustee
for the benefit of the holders of the Notes and (3) shall not be subject to
any Lien other than Liens expressly permitted by this Indenture and the
Collateral Documents; (vi) the property and assets of the person which is
merged or consolidated with or into such Guarantor or to which the
properties and assets of such Guarantor are transferred, to the extent that
they are property and assets of the types which would constitute Collateral
under the Collateral Documents shall be treated as After-Acquired Property
and such Guarantor or the Surviving Person, as the case may be, shall take
such actions as may be necessary to cause such property and assets to be
made subject to the Lien of the Collateral Documents in the manner and to
the extent required by this Indenture and (vii) in the case of any
consolidation, merger, transfer, assignment or other disposition involving
Parent, Parent and the Issuer have complied with the provisions of Section
4.15.
In case of any such consolidation, merger or transfer of assets and
upon the assumption by the successor corporation, by supplemental indenture,
executed and delivered to the Trustee and satisfactory in form to the
Trustee, of the Guarantees endorsed upon the Notes and the due and punctual
performance of all of the covenants and conditions of this Indenture to be
performed by such Guarantor, such successor corporation shall succeed to and
be substituted for such Guarantor with the same effect as if it had been
named herein as a Guarantor. Such successor corporation thereupon may cause
to be signed any or all of the Guarantees to be endorsed upon all of the
Notes issuable hereunder which theretofore shall not have been signed by the
Issuer and delivered to the Trustee. All the Guarantees so issued shall in
all respects have the same legal rank and benefit under this Indenture as
the Guarantees theretofore and thereafter issued in accordance with the
terms of this Indenture as though all of such Guarantees had been issued at
the date of the execution hereof.
(c) The Trustee, subject to the provisions of Section 12.04 hereof,
shall be entitled to receive an Officers' Certificate and an Opinion of
Counsel as conclusive evidence that any such consolidation, merger, sale or
conveyance, and any such assumption of Obligations, comply with the
provisions of this Section 12.03. Such Officers' Certificate and Opinion
of Counsel shall comply with the provisions of Section 13.05.
Section 12.04 Releases Following Sale of Assets.
----------------------------------
In the event of a sale or other disposition of all or substantially all
of the assets of any Guarantor, by way of merger, consolidation or
otherwise, or a sale or other disposition of all (or substantially all) of
the Capital Stock of any Subsidiary Guarantor, which sale or other
disposition otherwise complies with the terms of this Indenture, then such
Guarantor (in the event of a sale or other disposition, by way of such a
merger, consolidation or otherwise, of all or substantially all of the
Capital Stock of such Subsidiary Guarantor) or the corporation acquiring the
property (in the event of a sale or other disposition of all or
substantially all of the assets of such Subsidiary Guarantor) shall be
released from and relieved of any obligations under its Subsidiary
Guarantee; provided that the Net Proceeds from such sale or other
disposition are treated in accordance with the provisions of Section 4.10
hereof. Upon delivery by the Issuer to the Trustee of an Officer's
Certificate and Opinion of Counsel, to the effect that such sale or other
disposition was made by the Issuer in accordance with the provisions of this
Indenture, including without limitation Section 4.10 hereof, the Trustee
shall execute any documents reasonably required in order to evidence the
release of any such Subsidiary Guarantor from its obligations under its
Subsidiary Guarantee. Any Subsidiary Guarantor not released from its
obligations under its Subsidiary Guarantee shall remain liable for the full
amount of principal of and interest on the Notes and for the other
obligations of any Subsidiary Guarantor under this Indenture as provided in
this Article 12.
Section 12.05 Limitation of Guarantor's Liability.
------------------------------------
Each Subsidiary Guarantor, and by its acceptance hereof each Holder,
hereby confirms that it is the intention of all such parties that the
guarantee by such Guarantor pursuant to its Guarantee not constitute a
fraudulent transfer or conveyance for purposes of the Bankruptcy Law, the
Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or
any similar federal or state law. To effectuate the foregoing intention,
the Holders and such Subsidiary Guarantor hereby irrevocably agree that the
obligations of such Subsidiary Guarantor under this Article 12 shall be
limited to the maximum amount as will, after giving effect to all other
contingent and fixed liabilities of such Subsidiary Guarantor and after
giving effect to any collections from or payments made by or on behalf of
any other Subsidiary Guarantor in respect of the obligations of such other
Subsidiary Guarantor under this Article 12, result in the obligations of
such Subsidiary Guarantor under the Subsidiary Guarantee of such Subsidiary
Guarantor not constituting a fraudulent transfer or conveyance.
Section 12.06 Application of Certain Terms and Provisions
to the Guarantors.
-------------------------------------------
(a) For purposes of any provision of this Indenture which provides
for the delivery by any Guarantor of an Officers' Certificate and/or an
Opinion of Counsel, the definitions of such terms in Section 1.01 shall
apply to such Guarantor as if references therein to the Issuer were
references to such Guarantor.
(b) Any request, direction, order or demand which by any provision
of this Indenture is to be made by any Guarantor, shall be sufficient if
evidenced as described in Section 12.02 as if references therein to the
Issuer were references to such Guarantor.
(c) Any notice or demand which by any provision of this Indenture is
required or permitted to be given or served by the Trustee or by the holders
of Notes to or on any Guarantor may be given or served as described in
Section 12.02 as if references therein to the Issuer were references to such
Guarantor.
(d) Upon any demand, request or application by any Guarantor to the
Trustee to take any action under this Indenture, such Guarantor shall
furnish to the Trustee such certificates and opinions as are required in
Section 12.04 hereof as if all references therein to the Issuer were
references to such Guarantor.
ARTICLE 13
MISCELLANEOUS
Section 13.01. Trust Indenture Act Controls.
-----------------------------
If any provision of this Indenture limits, qualifies or conflicts with
the duties imposed by TIA Section 318(c), the imposed duties shall control.
Section 13.02. Notices.
--------
Any notice or communication by the Issuer or the Trustee to the others
is duly given if in writing and delivered in Person or mailed by first class
mail (registered or certified, return receipt requested), telex, telecopier
or overnight air courier guaranteeing next day delivery, to the others'
address:
If to the Issuer:
Sun World International, Inc.
P.O. Box 80298
Bakersfield, California 93312
Telecopier No.: (805) 392-5092
Attention: Chief Financial Officer
With a copy to:
Miller & Holguin
1801 Century Park East, 7th Floor
Los Angeles, California 90067
Telecopier No.: (310) 557-2205
Attention: Howard Unterberger
If to the Trustee:
IBJ Schroder Bank & Trust Company
One State Street
New York, New York 10004
Telecopier No.: (212) 858-2952
Attention: Corporate Trust Administration
With a copy to:
Riordan & McKinzie
695 Town Center Road
Costa Mesa, California 92626
Telecopier No.: (714) 433-2611
Attention: Michael P. Whalen
The Issuer or the Trustee, by notice to the others may designate
additional or different addresses for subsequent notices or communications.
All notices and communications (other than those sent to Holders) shall
be deemed to have been duly given: at the time delivered by hand, if
personally delivered; five Business Days after being deposited in the mail,
postage prepaid, if mailed; when answered back, if telexed; when receipt
acknowledged, if telecopied; and the next Business Day after timely delivery
to the courier, if sent by overnight air courier guaranteeing next day
delivery.
Any notice or communication to a Holder shall be mailed by first class
mail, certified or registered, return receipt requested, or by overnight air
courier guaranteeing next day delivery to its address shown on the register
kept by the Registrar. Any notice or communication shall also be so mailed
to any Person described in TIA Section 313(c), to the extent required by the
TIA. Failure to mail a notice or communication to a Holder or any defect in
it shall not affect its sufficiency with respect to other Holders.
If a notice or communication is mailed in the manner provided above
within the time prescribed, it is duly given, whether or not the addressee
receives it.
If the Issuer mails a notice or communication to Holders, it shall mail
a copy to the Trustee and each Agent at the same time.
Section 13.03. Communication by Holders of Notes with Other Holders of Notes.
------------------------------------------------------------
Holders may communicate pursuant to TIA Section 312(b) with other Holders
with respect to their rights under this Indenture or the Notes. The Issuer,
the Trustee, the Registrar and anyone else shall have the protection of TIA
Section 312(c).
Section 13.04. Certificate and Opinion as to Conditions Precedent.
---------------------------------------------------
Upon any request or application by the Issuer to the Trustee to take
any action under this Indenture, the Issuer shall furnish to the Trustee:
(a) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set
forth in Section 13.05 hereof) stating that, in the opinion of the
signers, all conditions precedent and covenants, if any, provided for
in this Indenture relating to the proposed action have been satisfied;
and
(b) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set
forth in Section 13.05 hereof) stating that, in the opinion of such
counsel, all such conditions precedent and covenants have been
satisfied.
Section 13.05. Statements Required in Certificate or Opinion.
----------------------------------------------
Each certificate or opinion with respect to compliance with a condition
or covenant provided for in this Indenture (other than a certificate
provided pursuant to TIA Section 314(a)(4)) shall comply with the provisions of
TIA Section 314(e) and shall include:
(a) a statement that the Person making such certificate or
opinion has read such covenant or condition;
(b) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(c) a statement that, in the opinion of such Person, he or she
has made such examination or investigation as is necessary to enable
him to express an informed opinion as to whether or not such covenant
or condition has been satisfied; and
(d) a statement as to whether or not, in the opinion of such
Person, such condition or covenant has been satisfied.
Section 13.06. Rules by Trustee and Agents.
------------------------------------------
The Trustee may make reasonable rules for action by or at a meeting of
Holders. The Registrar or Paying Agent may make reasonable rules and set
reasonable requirements for its functions.
Section 13.07. No Personal Liability of Directors, Officers, Employees and
Stockholders.
----------------------------------------------------------
No past, present or future director, officer, employee, incorporator
or stockholder of the Issuer or any Subsidiary, as such, shall have any
liability for any obligations of the Issuer or any Subsidiary under the
Notes, this Indenture or the Collateral Documents or for any claim based on,
in respect of, or by reason of, such obligations or their creation. Each
Holder by accepting a Note waives and releases all such liability. The
waiver and release are part of the consideration for issuance of the Notes.
Section 13.08. Governing Law.
-------------
THE INTERNAL LAW OF THE STATE OF CALIFORNIA SHALL GOVERN AND BE USED
TO CONSTRUE THIS INDENTURE, THE NOTES AND THE GUARANTEES OF THE NOTES,
WITHOUT REGARD TO THE PRINCIPLES OF CONFLICT OF LAWS THEREOF.
Section 13.09. No Adverse Interpretation of Other Agreements.
----------------------------------------------
This Indenture may not be used to interpret any other indenture, loan
or debt agreement of the Issuer or its Subsidiaries or of any other Person.
Any such indenture, loan or debt agreement may not be used to interpret this
Indenture.
Section 13.10. Successors.
-----------
All agreements of the Issuer in this Indenture and the Notes shall bind
its successors. All agreements of the Trustee in this Indenture shall bind
its successors.
Section 13.11. Severability.
------------
In case any provision in this Indenture or in the Notes shall be
invalid, illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
Section 13.12. Counterpart Originals.
----------------------
The parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together represent the
same agreement.
Section 13.13. Table of Contents, Headings, etc.
---------------------------------
The Table of Contents, Cross-Reference Table and Headings of the
Articles and Sections of this Indenture have been inserted for convenience
of reference only, are not to be considered a part of this Indenture and
shall in no way modify or restrict any of the terms or provisions hereof.
SIGNATURES
Dated as of April 16, 1997 Sun World International, Inc.
By: /s/ Timothy J. Shaheen
-----------------------
Name: Timothy J. Shaheen
Title: President and
Chief Executive Officer
Attest:
Dated as of April 16, 1997 Cadiz Land Company, Inc.
By: /s/ Keith Brackpool
--------------------------
Name: Keith Brackpool
Title: Chief Executive Officer
Attest:
Dated as of April 16, 1997 Agri-Land Realty, Inc.
Sun World Management Corporation
Sun World Avocado
Sun World Export, Inc.
Sun World Brands
Sun World/Rayo
Dinuba Packing Corporation
SFC Marketing Corporation
Sun Harvest, Inc.
Pacific Farm Service, Inc.
Big Valley Leasing, Inc.
Sun Desert, Inc.
Coachella Growers
By: /s/ Timothy J. Shaheen
--------------------------
Name: Timothy J. Shaheen
Title:
Attest:
(SEAL)
Dated as of April 16, 1997 IBJ Schroder Bank & Trust Company
Trustee
By: /s/ Luis Perez
-----------------------------
Name: Luis Perez
Title: Assistant Vice President
Attest:
- ----------------------- (SEAL)
Exhibit A
(Face of Note)
11-1/4% [Series A] [Series B] First Mortgage Notes due 2004
No. $__________
SUN WORLD INTERNATIONAL, INC.
promises to pay to
or registered assigns,
the principal sum of
Dollars on April 15, 2004.
Interest Payment Dates: April 15, and October 15
Record Dates: April 1, and October 1
Dated: April 16, 1997
SUN WORLD INTERNATIONAL, INC.
By:
--------------------------
Name:
Title:
(SEAL)
This is one of the [Global]
Notes referred to in the
within-mentioned Indenture:
IBJ SCHRODER BANK & TRUST COMPANY,
as Trustee
By:__________________________________
(Back of Note)
11-1/4% [Series A] [Series B] First Mortgage Notes due 2004
[Unless and until it is exchanged in whole or in part for Notes in
definitive form, this Note may not be transferred except as a whole by the
Depository to a nominee of the Depository or by a nominee of the Depository
to the Depository or another nominee of the Depository or by the Depository
or any such nominee to a successor Depository or a nominee of such successor
Depository. Unless this certificate is presented by an authorized
representative of The Depository Trust Company (55 Water Street, New York,
New York) ("DTC"), to the issuer or its agent for registration of transfer,
exchange or payment, and any certificate issued is registered in the name
of Cede & Co. or such other name as may be requested by an authorized
representative of DTC (and any payment is made to Cede & Co. or such other
entity as may be requested by an authorized representative of DTC), ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY
PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has
an interest herein.](1)
(1) This paragraph should be included only if the Note is issued in global
form.
THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY
ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE
UNITED STATES SECURITIES ACT OF 1933, (THE "SECURITIES ACT"), AND THE
SECURITY EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED
IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM.
EACH PURCHASER OF THIS SECURITY IS HEREBY NOTIFIED THAT THE SELLER MAY BE
RELYING ON THE EXEMPTION FROM SECTION 5 OF THE SECURITIES ACT PROVIDED BY
RULE 144A THEREUNDER. THE HOLDER OF THE SECURITY EVIDENCED HEREBY AGREES FOR
THE BENEFIT OF THE ISSUER THAT (A) SUCH SECURITY MAY BE RESOLD, PLEDGED OR
OTHERWISE TRANSFERRED, ONLY (1) (a) TO A PERSON WHO THE SELLER REASONABLY
BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN OF RULE 144A UNDER
THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A,
(b) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE
SECURITIES ACT, (c) OUTSIDE THE UNITED STATES TO A FOREIGN PERSON IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 UNDER THE SECURITIES ACT OR
(d) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS
OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL IF THE ISSUER SO
REQUESTS), (2) TO THE ISSUER OR (3) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH THE APPLICABLE SECURITIES
LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION
AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY
ANY PURCHASER OF THE SECURITY EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET
FORTH IN (1) ABOVE.
Capitalized terms used herein shall have the meanings assigned to them
in the Indenture referred to below unless otherwise indicated.
1. INTEREST. Sun World International, Inc., a Delaware corporation (the
"Issuer"), promises to pay interest on the principal amount of this Note at
11-1/4% per annum from April 16, 1997 until maturity and shall pay the
Liquidated Damages payable pursuant to Section 5 of the Registration Rights
Agreement referred to below. The Issuer will pay interest and Liquidated
Damages semi-annually on April 15 and October 15 of each year, or if any
such day is not a Business Day, on the next succeeding Business Day (each
an "Interest Payment Date"). Interest on the Notes will accrue from the
most recent date to which interest has been paid or, if no interest has been
paid, from the date of issuance; provided that if there is no existing
Default in the payment of interest, and if this Note is authenticated
between a record date referred to on the face hereof and the next succeeding
Interest Payment Date, interest shall accrue from such next succeeding
Interest Payment Date; provided, further, that the first Interest Payment
Date shall be October 15, 1997. The Issuer shall pay interest (including
post-petition interest in any proceeding under any Bankruptcy Law) on
overdue principal from time to time on demand at a rate that is 1% per annum
in excess of the rate then in effect; it shall pay interest (including post-
petition interest in any proceeding under any Bankruptcy Law) on overdue
installments of interest and Liquidated Damages (without regard to any
applicable grace period) from time to time on demand at the same rate to the
extent lawful. Interest will be computed on the basis of a 360-day year of
twelve 30-day months.
2. METHOD OF PAYMENT. The Issuer will pay interest on the Notes (except
defaulted interest) and Liquidated Damages to the Persons who are registered
Holders of Notes at the close of business on the April 1 or October 1 next
preceding the Interest Payment Date, even if such Notes are cancelled after
such record date and on or before such Interest Payment Date, except as
provided in Section 2.12 of the Indenture with respect to defaulted
interest. The Notes will be payable as to principal, premium, interest and
Liquidated Damages at the office or agency of the Issuer maintained for such
purpose within or without the City and State of New York, or, at the option
of the Issuer, payment of interest and Liquidated Damages may be made by
check mailed to the Holders at their addresses set forth in the register of
Holders, and provided that payment by wire transfer of immediately available
funds will be required with respect to principal of and interest, premium
and Liquidated Damages on, all Global Notes and all other Notes the Holders
of which shall have provided wire transfer instructions to the Issuer or the
Paying Agent. Such payment shall be in such coin or currency of the United
States of America as at the time of payment is legal tender for payment of
public and private debts.
3. PAYING AGENT AND REGISTRAR. Initially, IBJ Schroder Bank & Trust
Company, the Trustee under the Indenture, will act as Paying Agent and
Registrar. The Issuer may change any Paying Agent or Registrar without notice
to any Holder. The Issuer or any of its Subsidiaries may act in any such
capacity.
4. INDENTURE AND COLLATERAL DOCUMENTS. The Issuer issued the Notes under an
Indenture dated as of April 16, 1997 ("Indenture") between the Issuer, the
Guarantors and the Trustee. The terms of the Notes include those stated in
the Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939, as amended (15 U.S. Code Sections 77aaa-77bbbb). The
Notes are subject to all such terms, and Holders are referred to the Indenture
and such Act for a statement of such terms. The Notes are secured obligations
of the Issuer limited to $115 million in aggregate principal amount. The
Notes are secured by a pledge of certain assets of the Issuer pursuant to
the Collateral Documents referred to in the Indenture.
5. OPTIONAL REDEMPTION.
The Issuer shall not have the option to redeem the Notes prior to April
15, 2001. Thereafter, the Issuer shall have the option to redeem the Notes,
in whole or in part, upon not less than 30 nor more than 60 days' notice,
at the redemption prices (expressed as percentages of principal amount) set
forth below plus accrued and unpaid interest and Liquidated Damages thereon
to the applicable redemption date, if redeemed during the twelve-month
period beginning on April 15 of the years indicated below:
Year Percentage
- ------ --------------
2001 . . . . . . . . . . . . . . . . . . . . . 105.625%
2002 . . . . . . . . . . . . . . . . . . . . . 102.813%
2003 and thereafter. . . . . . . . . . . . . . 100.000%
6. MANDATORY REDEMPTION.
Except as set forth in paragraph 7 below, the Issuer shall not be
required to make mandatory redemption payments with respect to the Notes.
7. Repurchase at Option of Holder.
(a) If there is a Change of Control, the Issuer shall be required
to make an offer (a "Change of Control Offer") to repurchase all or any part
(equal to $1,000 or an integral multiple thereof) of each Holder's Notes at
a purchase price equal to 101% of the aggregate principal amount thereof
plus accrued and unpaid interest and Liquidated Damages thereon, if any, to
the date of purchase (the "Change of Control Payment"). Within 10 days
following any Change of Control, the Issuer shall mail a notice to each
Holder setting forth the procedures governing the Change of Control Offer
as required by the Indenture.
(b) If Parent, the Issuer or a Subsidiary consummates any Asset
Sales, within five days of each date on which the aggregate amount of Excess
Proceeds exceeds $5.0 million, the Issuer shall commence an offer to all
Holders of Notes (as "Asset Sale Offer") pursuant to Section 3.09 of the
Indenture to purchase the maximum principal amount of Notes that may be
purchased out of the Excess Proceeds at an offer price in cash in an amount
equal to 100% of the principal amount thereof plus accrued and unpaid
interest and Liquidated Damages thereon, if any, to the date fixed for the
closing of such offer, in accordance with the procedures set forth in the
Indenture. To the extent that the aggregate amount of Notes tendered
pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Issuer
(or Parent) may use any remaining Excess Proceeds for general corporate
purposes. If the aggregate principal amount of Notes surrendered by Holders
thereof exceeds the amount of Excess Proceeds, the Trustee shall select the
Notes to be purchased on a pro rata basis. Holders of Notes that are the
subject of an offer to purchase will be sent an Asset Sale Offer from the
Issuer prior to any related purchase date and may elect to have such Notes
purchased by completing the form entitled "Option of Holder to Elect
Purchase" on the reverse of the Notes.
8. NOTICE OF REDEMPTION. Notice of redemption will be mailed at least
30 days but not more than 60 days before the redemption date to each Holder
whose Notes are to be redeemed at its registered address. Notes in
denominations larger than $1,000 may be redeemed in part but only in whole
multiples of $1,000, unless all of the Notes held by a Holder are to be
redeemed. On and after the redemption date interest ceases to accrue on
Notes or portions thereof called for redemption.
9. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered form
without coupons in denominations of $1,000 and integral multiples of
$1,000. The transfer of Notes may be registered and Notes may be exchanged
as provided in the Indenture. The Registrar and the Trustee may require a
Holder, among other things, to furnish appropriate endorsements and transfer
documents and the Issuer may require a Holder to pay any taxes and fees
required by law or permitted by the Indenture. The Issuer need not exchange
or register the transfer of any Note or portion of a Note selected for
redemption, except for the unredeemed portion of any Note being redeemed in
part. Also, it need not exchange or register the transfer of any Notes for
a period of 15 days before a selection of Notes to be redeemed or during the
period between a record date and the corresponding Interest Payment Date.
10. PERSONS DEEMED OWNERS. The registered Holder of a Note may be
treated as its owner for all purposes.
11. AMENDMENT, SUPPLEMENT and WAIVER. Subject to certain exceptions,
the Indenture or the Notes may be amended or supplemented with the consent
of the Holders of at least a majority in principal amount of the then
outstanding Notes, and any existing default or compliance with any provision
of the Indenture, the Guarantees, the Collateral Documents or the Notes may
be waived with the consent of the Holders of a majority in principal amount
of the then outstanding Notes. Without the consent of any Holder of a Note,
the Indenture, the Notes, the Guarantees or the Collateral Documents may be
amended or supplemented to cure any ambiguity, defect or inconsistency, to
provide for uncertificated Notes in addition to or in place of certificated
Notes, to provide for the assumption of the Issuer's obligations to Holders
of the Notes in case of a merger or consolidation, to make any change that
would provide any additional rights or benefits to the Holders of the Notes
or that does not adversely affect the legal rights under the Indenture of
any such Holder, or to comply with the requirements of the Commission in
order to effect or maintain the qualification of the Indenture under the
TIA.
12. DEFAULTS AND REMEDIES. (a) Events of Default include: (i) default
in the payment when due of interest on, or Liquidated Damages with respect
to, the Notes and such default continues for a period of 30 days; (ii)
default in the payment when due of principal of or premium, if any, on the
Notes when the same becomes due and payable at maturity, upon redemption
(including in connection with an offer to purchase) or otherwise; (iii)
failure by Parent or the Issuer to comply with any of the provisions of
Section 4.07, 4.09, 4.10, 4.15 or 5.01 of the Indenture; (iv) failure by
Parent, the Issuer or any Subsidiary Guarantor to observe or perform any
other covenant, representation, warranty or other agreement in the
Indenture, the Notes, the Guarantees or the Collateral Documents for 30 days
after notice to the Issuer by the Trustee or the Holders of at least 25% in
principal amount of the Notes then outstanding; (v) default under any
mortgage, indenture or instrument under which there may be issued or by
which there may be secured or evidenced any Indebtedness for money borrowed
by the Issuer or any of its Subsidiaries (or the payment of which is
guaranteed by the Issuer or any of Its Subsidiaries), whether such
Indebtedness or guarantee now exists, or is created after the date of the
Indenture, which default results in the acceleration of such Indebtedness
prior to its express maturity and, in each case, the principal amount of
such Indebtedness, together with the principal amount of any other such
Indebtedness the maturity of which has been so accelerated, aggregates $5.0
million or more; (vi) failure by Parent, the Issuer or any of their
Subsidiaries or any group of Subsidiaries that, taken as a whole, would
constitute a Significant Subsidiary to pay final judgments aggregating in
excess of $5.0 million, which judgments are not paid, discharged or stayed
for a period of 60 days; (vii) except as permitted by Article 12 of the
Indenture, (1) the Parent Guarantee or any Subsidiary Guarantee (A) is held
in any judicial proceeding to be unenforceable or invalid or (B) ceases for
any reason to be in full force and effect, or (2) Parent or any Subsidiary
Guarantor, or any Person acting on behalf of Parent or any Subsidiary
Guarantor, disaffirms or denies its obligations under its Guarantee; (viii)
the breach by Parent or the Issuer of any material representation, warranty
or agreement set forth in the Collateral Documents or any Collateral
Document shall be held in any judicial proceeding to be unenforceable or
invalid or shall cease for any reason to be in full force and effect; and
(ix) certain events of bankruptcy or insolvency with respect to Parent, the
Issuer or any of Significant Subsidiaries or group of Subsidiaries which,
taken together, would constitute a Significant Subsidiary, as set forth in
Section 6.01 of the Indenture. If any Event of Default occurs and is
continuing, the Trustee or the Holders of at least 25% in principal amount
of the then outstanding Notes may declare all the Notes to be due and
payable immediately. Notwithstanding the foregoing, in the case of an Event
of Default arising from certain events of bankruptcy or insolvency, all
outstanding Notes will become due and payable immediately without further
action or notice. Holders may not enforce the Indenture or the Notes except
as provided in the Indenture. Subject to certain limitations, Holders of
a majority in principal amount of the then outstanding Notes may direct the
Trustee in its exercise of any trust or power. The Trustee may withhold from
Holders of the Notes notice of any continuing Default or Event of Default
(except a Default or Event of Default relating to the payment of principal
or interest) if it determines that withholding notice is in their interest.
The Holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the Holders of all of
the Notes waive any existing Default or Event of Default and its
consequences under the Indenture except a continuing Default or Event of
Default in the payment of the principal of, premium, Liquidated Damages, if
any, or interest on, the Notes. The Issuer is required to deliver to the
Trustee annually a statement regarding compliance with the Indenture, and
the Issuer is required upon becoming aware of any Default or Event of
Default, to deliver to the Trustee a statement specifying such Default or
Event of Default.
(b) In the case of any Event of Default occurring by reason of
any willful action (or inaction) taken (or not taken) by or on behalf of the
Issuer with the intention of avoiding payment of the premium that the Issuer
would have had to pay if the Issuer then had elected to redeem the Notes
pursuant to the provisions of paragraph 5 hereof, an equivalent premium
shall also become and be immediately due and payable to the extent permitted
by law upon the acceleration of the Notes. If an Event of Default occurs
prior to April 15, 2001 by reason of any willful action (or inaction) taken
(or not taken) by or on behalf of the Issuer with the intention of avoiding
the prohibition on redemption of the Notes prior to April 15, 2001, then the
premium specified in paragraph 5 hereof shall also become immediately due
and payable to the extent permitted by law upon the acceleration of the
Notes.
13. TRUSTEE DEALINGS WITH THE ISSUER. The Trustee, in its individual or
any other capacity, may make loans to, accept deposits from, and perform
services for the Issuer or its Affiliates, and may otherwise deal with the
Issuer or its Affiliates, as if it were not the Trustee.
14. NO RECOURSE AGAINST OTHERS. A director, officer, employee,
incorporator or stockholder, of the Issuer or any Subsidiary, as such, shall
not have any liability for any obligations of the Issuer or any Subsidiary
under the Notes, the Guarantees, the Indenture or the Collateral Documents
or for any claim based on, in respect of, or by reason of, such obligations
or their creation. Each Holder by accepting a Note waives and releases all
such liability. The waiver and release are part of the consideration for
the issuance of the Notes.
15. AUTHENTICATION. This Note shall not be valid until authenticated
by the manual signature of the Trustee.
16. ABBREVIATONS. Customary abbreviations may be used in the name
of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT
(= tenants by the entireties), JT TEN (= joint tenants with right of
survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A
(= Uniform Gifts to Minors Act).
17. ADDITIONAL RIGHTS OF HOLDERS OF TRANSFER RESTRICTE SECURITIES.
In addition to the rights provided to Holders of Notes under the Indenture,
Holders of Transferred Restricted Securities shall have all the rights set
forth in the A/B Exchange Registration Rights Agreement dated as of April
16, 1997, between the Issuer and the parties named on the signature pages
thereof (the "Registration Rights Agreement").
18. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Issuer has
caused CUSIP numbers to be printed on the Notes and the Trustee may use
CUSIP numbers in notices of redemption as a convenience to Holders. No
representation is made as to the accuracy of such numbers either as printed
on the Notes or as contained in any notice of redemption and reliance may
be placed only on the other identification numbers placed thereon.
The Issuer will furnish to any Holder upon written request and
without charge a copy of the Indenture and/or the Registration Rights
Agreement. Requests may be made to:
Sun World International, Inc.
P.O. Box 80298
Bakersfield, California 93312
Attention: Chief Financial Officer
GUARANTEE
The Guarantors listed below (hereinafter referred to as the
"Guarantors," which term includes any successors or assigns under the
Indenture (the "Indenture") and any additional Guarantors), have irrevocably
and unconditionally guaranteed (i) the due and punctual payment of the
principal of, premium, if any, and interest on the 11-1/4% First Mortgage Notes
due April 15, 2004 (the "Notes") of Sun World International, Inc., a
Delaware corporation (the "Company"), whether at stated maturity, by
acceleration or otherwise, the due and punctual payment of interest on the
overdue principal, and premium if any, and (to the extent permitted by law)
interest on any interest, if any, on the Notes, and the due and punctual
performance of all other obligations of the Company, to the Holders or the
Trustee all in accordance with the terms set forth in Article 12 of the
Indenture, (ii) in case of any extension of time of payment or renewal of
any Notes or any such other obligations, that the same will be promptly paid
in full when due or performed in accordance with the terms of the extension
or renewal, whether at stated maturity, by acceleration or otherwise, and
(iii) the payment of any and all costs and expenses (including reasonable
attorneys' fees) incurred by the Trustee or any Holder in enforcing any
rights under this Guarantee.
The obligations of each Guarantor to the Holder and to the Trustee
pursuant to this Guarantee and the Indenture are expressly set forth in
Article 12 of the Indenture and reference is hereby made to such Indenture
for the precise terms of this Guarantee.
No officer, director, manager, or incorporator, as such, past,
present or future of each Guarantor shall have any liability under this
Guarantee by reason of his or its status as such officer, director, manager
or incorporator.
This is a continuing Guarantee and shall remain in full force and
effect and shall be binding upon each Guarantor and its successors and
assigns until full and final payment of all of the Company's obligations
under the Notes and Indenture and shall inure to the benefit of the
successors and assigns of the Trustee and the Holders, and, in the event of
any transfer or assignment of rights by any Holder or the Trustee, the
rights and privileges herein conferred upon that party shall automatically
extend to and be vested in such transferee or assignee, all subject to the
terms and conditions hereof. This is a Guarantee of payment and not of
collectibility.
This Guarantee shall not be valid or obligatory for any purpose
until the certificate of authentication on the Note upon which this
Guarantee is noted shall have been executed by the Trustee under the
Indenture by the manual signature of one of its authorized officers.
The Obligations of each Guarantor under its Guarantee shall be
limited to the extent necessary to insure that it does not constitute a
fraudulent conveyance under applicable law.
Each Guarantor hereby irrevocably waives any defenses it may now or
hereafter have in any way relating to any or all of the following: (a) any
lack of validity or enforceability of the Indenture, any Note or Collateral
Document, or any agreement or instrument relating thereto; (b) any change
in the time, manner or place of payment of, or in any other term of, all or
any of the obligations guaranteed hereby or any other obligations of any
other Person under the Indenture, any Note or any Collateral Document, or
any other amendment or waiver of or any consent to, or departure from the
terms hereof or thereof, including, without limitation, any increase in the
obligations guaranteed hereby resulting from the extension of additional
credit to the Issuer or any of its Subsidiaries or otherwise; (c) any
taking, exchange, release, or non-perfection of any Collateral, or any
taking, release or amendment or waiver of or consent to departure from any
other guarantee, for all or any of the obligations guaranteed hereby; (d)
any manner of application of Collateral, or proceeds thereof, to all or any
of the obligations guaranteed hereby, or any manner of sale or other
disposition of any Collateral for all or any of the obligations guaranteed
hereby or any other obligations of any other Person under the Indenture, any
Note or any Collateral Document, or any other assets of the Issuer or any
of its Subsidiaries; (e) any change, restructuring or termination of the
corporate structure or existence of the Issuer or any of its Subsidiaries;
(f) any failure of any Benefitted Party to disclose to the Issuer or any
Guarantor any information relating to the financial condition, operations,
properties or prospects of the Issuer or any other Guarantor now or in the
future known to any Benefitted Party (the Issuer and each Guarantor hereby
waiving any duty on the part of the Benefitted Parties to disclose such
information); or (g) any other circumstance (including, without limitation,
any statute of limitations) or any existence of or reliance on any
representation by the Trustee or any other Benefitted Party that might
otherwise constitute a defense available to, or a discharge of, the Issuer,
any Guarantor or any other guarantor or surety.
Each Guarantor hereby waives promptness, diligence, notice of
acceptance and any other notice with respect to any of the obligations
guaranteed hereby and its Guarantee and any requirement that the Trustee or
any other Benefitted Party protect, secure, perfect or insure any Lien or
any property subject thereto or exhaust any right or take any action against
the Issuer or any other Person or any Collateral.
Each Guarantor hereby waives any right to revoke its Guarantee, and
acknowledges that its Guarantee is continuing in nature and applies to all
obligations of the Issuer hereunder and under the Notes, whether existing
now or in the future.
Each Guarantor acknowledges that the Trustee may, without notice to
or demand upon such Guarantor and without affecting the liability of such
Guarantor under its Guarantee, foreclose under any Deed of Trust by
nonjudicial sale, and each Guarantor hereby waives all rights and defenses
(including, without limitation, any defense to the recovery by the Trustee
and the other Benefitted Parties against any Guarantor of any deficiency
after such nonjudicial sale and any defense or benefits that may be afforded
by Sections 580a and 580d of the California Code of Civil Procedure or any
statute or law in any other jurisdiction having similar effect) arising out
of an election of remedies by the Trustee or any other Benefitted Party,
even though that election of remedies, such as a nonjudicial foreclosure
with respect to security for an obligation guaranteed by its Guarantee, has
destroyed such Guarantor's rights of subrogation and reimbursement against
the principal by the operation of Section 580d of the California Code of
Civil Procedure or otherwise.
Each Guarantor acknowledges that it will receive substantial direct
and indirect benefits from the financing arrangements contemplated hereby
and that the waivers set forth in this Article Twelve are knowingly made in
contemplation of such benefits.
If any Holder or the Trustee is required by any court or otherwise
to return to either the Issuer or the Guarantors, or any trustee or similar
official acting in relation to either the Issuer or the Guarantors, any
amount paid by the Issuer or the Guarantors to the Trustee or such Holder,
the Guarantees, to the extent theretofore discharged, shall be reinstated
in full force and effect. Each of the Guarantors agrees that it shall not
be entitled to any right of subrogation in relation to the Holders in
respect of any obligations guaranteed hereby until payment in full of all
obligations guaranteed hereby. Each Guarantor agrees that, as between it,
on the one hand, and the Holders of Notes and the Trustee, on the other
hand, (x) the maturity of the obligations guaranteed hereby may be
accelerated as provided in Article 6 hereof for the purposes hereof,
notwithstanding any stay, injunction or other prohibition preventing such
acceleration in respect of the obligations guaranteed hereby, and (y) in the
event of any acceleration of such obligations as provided in Article 6
hereof, such obligations (whether or not due and payable) shall forthwith
become due and payable by such Guarantor for the purpose of the Guarantee.
THE TERMS OF ARTICLE 12 OF THE INDENTURE ARE INCORPORATED HEREIN BY
REFERENCE.
Capitalized terms used herein have the same meanings given in the
Indenture unless otherwise indicated.
Dated as of April 16, 1997 Cadiz Land Company, Inc.
By:
Name:
Title:
Attest:
Dated as of April 16, 1997 Agri-Land Realty, Inc.
Sun World Management Corporation
Sun World Avocado
Sun World Export, Inc.
Sun World Brands
Sun World/Rayo
Dinuba Packing Corporation
SFC Marketing Corporation
Sun Harvest, Inc.
Pacific Farm Service, Inc.
Big Valley Leasing, Inc.
Sun Desert, Inc.
Coachella Growers
By:
Name:
Title:
Attest:
(SEAL)
Assignment Form
To assign this Note, fill in the form below: (I) or (we) assign and
transfer this Note to
- ----------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. no.)
- ----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint __________________________________________________
to transfer this Note on the books of the Issuer. The agent may substitute
another to act for him.
Date:
Your Signature:
(Sign exactly as your name
appears on the face of this Note)
Signature Guarantee.
Option of Holder to Elect Purchase
If you want to elect to have this Note purchased by the Issuer
pursuant to Section 4.10 or 4.15 of the Indenture, check the box below:
_____Section 4.10 ______Section 4.15
If you want to elect to have only part of the Note purchased by
the Issuer pursuant to Section 4.10 or Section 4.15 of the Indenture, state
the amount you elect to have purchased: $___________
Date: Your Signature:
(Sign exactly as your
name appears on the Note)
Tax Identification No.:
Signature Guarantee.
SCHEDULE OF EXCHANGES OF DEFINITIVE NOTE(2)
The following exchanges of a part of this Global Note for
Definitive Notes have been made:
Principal Signature
Amount of Amount of
Decrease in Amount of of this Authorized
Principal Decrease in Global Note Officer of
Amount of Principal following Trustee
Date of this Amount of such decrease or Note
Exchange Global Note this Global Note (or increase) Custodian
- -------- ------------ ---------------- ---------------- -------------
- -------------------------
(2) This should be included only if the Note is issued in global form.
EXHIBIT B-1
FORM OF CERTIFICATE FOR EXCHANGE OR REGISTRATION OF TRANSFER
OF CERTIFICATED NOTES
(Pursuant to Section 2.06(b) of the Indenture)
IBJ Schroder Bank & Trust Company
One State Street
New York, New York 10004
Attention: Corporate Trust Administration
Re: 11-1/4% First Mortgage Notes due 2004 of Sun World
International, Inc.
Reference is hereby made to the Indenture, dated as of April 16,
1997 (the "Indenture"), among Sun World International, Inc., as issuer (the
"Issuer"), the Guarantors and IBJ Schroder Bank & Trust Company, as trustee.
Capitalized terms used but not defined herein shall have the meanings given
to them in the Indenture.
This letter relates to $_______ principal amount of Notes which
are evidenced by one or more Global Notes (CUSIP No. _________) and held
with the Depository in the name of ____________________________ (the
"Holder" or "Transferor"). The Transferor hereby requests a transfer of
such beneficial interest in the Notes to a Person who will take delivery
thereof in the form of an equal principal amount of Notes evidenced by one
or more Certificated Notes (CUSIP No. ___________), which Notes, immediately
after such transfer, are to be delivered to the Transferor at the address
set forth below.
In connection with such request and in respect of the Notes
surrendered to the Trustee herewith for exchange (the "Surrendered Notes"),
the Holder of such Surrendered Notes hereby certifies that:
[CHECK ONE]
____the Surrendered Notes are being acquired for the Transferor's
own account, without transfer;
or
____the Surrendered Notes are being transferred to the Issuer;
or
____the Surrendered Notes are being transferred pursuant to and in
accordance with Rule 144A under the United States Securities Act
of 1933, as amended (the "Securities Act"), and, accordingly,
the Transferor hereby further certifies that the Surrendered
Notes are being transferred to a Person that the Transferor
reasonably believes is purchasing the Surrendered Notes for its
own account, or for one or more accounts with respect to which
such Person exercises sole investment discretion, and such
Person and each such account is a qualified institutional buyer
within the meaning of Rule 144A, in each case in a transaction
meeting the requirements of Rule 144A;
or
____the Surrendered Notes are being transferred in a transaction
permitted by Rule 144 under the Securities Act;
or
____the Surrendered Notes are being transferred pursuant to an
effective registration statement under the Securities Act;
or
____such transfer is being effected pursuant to an exemption from
the registration requirements of the Securities Act other than
Rule 144A or Rule 144, and the Transferor hereby further
certifies that the Notes are being transferred in compliance
with the transfer restrictions applicable to the Notes and in
accordance with the requirements of the exemption claimed, which
certification is supported by an Opinion of Counsel, provided by
the Transferor or the transferee (a copy of which the Transferor
has attached to this certification) in form reasonably
acceptable to the Issuer and to the Registrar, to the effect
that such transfer is in compliance with the Securities Act;
and the Surrendered Notes are being transferred in compliance with any
applicable blue sky securities laws of any state of the United States.
This certificate and the statements contained herein are made for
your benefit and the benefit of the Issuer and Smith Barney Inc., the
initial purchaser of such Notes being transferred.
__________________________
[Insert Name of Holder/Transferor]
By:
Name:
Title:
Dated: _____________, _____
cc: Sun World International, Inc.
P.O. Box 80298
Bakersfield, California 93312
Attention: Chief Financial Officer
Exhibit B-2
FORM OF CERTIFICATE FOR EXCHANGE OR REGISTRATION OF TRANSFER
FROM GLOBAL NOTE TO CERTIFICATED NOTE
(Pursuant to Section 2.06(c) of the Indenture)
IBJ Schroder Bank & Trust Company
One State Street
New York, New York 10004
Attention: Corporate Trust Administration
Re: 11-1/4% First Mortgage Notes due 2004 of Sun World
International, Inc.
Reference is hereby made to the Indenture, dated as of April 16,
1997 (the "Indenture"), among Sun World International, Inc., as issuer (the
"Issuer"), the Guarantors and IBJ Schroder Bank & Trust Company, as trustee.
Capitalized terms used but not defined herein shall have the meanings given
to them in the Indenture.
This letter relates to $_______ principal amount of Notes which
are evidenced by one or more Global Notes (CUSIP No. _________) and held
with the Depository in the name of ____________________________ (the
"Holder" or "Transferor"). The Transferor hereby requests a transfer of
such beneficial interest in the Notes to a Person who will take delivery
thereof in the form of an equal principal amount of Notes evidenced by one
or more Certificated Notes (CUSIP No. ___________), which Notes, immediately
after such transfer, are to be delivered to the Transferor at the address
set forth below.
In connection with such request and in respect of the Notes
surrendered to the Trustee herewith for exchange (the "Surrendered Notes"),
the Holder of such Surrendered Notes hereby certifies that:
[CHECK ONE]
____the Surrendered Notes are being transferred to the beneficial
owner of such Notes;
or
____the Surrendered Notes are being transferred pursuant to and in
accordance with Rule 144A under the United States Securities Act
of 1933, as amended (the "Securities Act"), and, accordingly,
the Transferor hereby further certifies that the Surrendered
Notes are being transferred to a Person that the Transferor
reasonably believes is purchasing the Surrendered Notes for its
own account, or for one or more accounts with respect to which
such Person exercises sole investment discretion, and such
Person and each such account is a qualified institutional buyer
within the meaning of Rule 144A, in each case in a transaction
meeting the requirements of Rule 144A;
or
____the Surrendered Notes are being transferred in a transaction
permitted by Rule 144 under the Securities Act;
or
____the Surrendered Notes are being transferred pursuant to an
effective registration statement under the Securities Act;
or
____such transfer is being effected pursuant to an exemption from
the registration requirements of the Securities Act other than
Rule 144A or Rule 144, and the Transferor hereby further
certifies that the Notes are being transferred in compliance
with the transfer restrictions applicable to the Global Notes
and in accordance with the requirements of the exemption
claimed, which certification is supported by an Opinion of
Counsel, provided by the Transferor or the transferee (a copy of
which the Transferor has attached to this certification) in form
reasonably acceptable to the Issuer and to the Registrar, to the
effect that such transfer is in compliance with the Securities
Act;
and the Surrendered Notes are being transferred in compliance with any
applicable blue sky securities laws of any state of the United States.
This certificate and the statements contained herein are made for
your benefit and the benefit of the Issuer and Smith Barney Inc., the
initial purchaser of such Notes being transferred.
__________________________
[Insert Name of Holder/Transferor]
By:
Name:
Title:
Dated: _____________, _____
__________________________
[Address of Transferor]
__________________________
cc: Sun World International, Inc.
P.O. Box 80298
Bakersfield, California 93312
Attention: Chief Financial Officer
Exhibit B-3
FORM OF CERTIFICATE FOR EXCHANGE OR REGISTRATION OF TRANSFER
FROM CERTIFICATED NOTE TO GLOBAL NOTE
(Pursuant to Section 2.06(e) of the Indenture)
IBJ Schroder Bank & Trust Company
One State Street
New York, New York 10004
Attention: Corporate Trust Administration
Re: 11-1/4% First Mortgage Notes due 2004 of Sun World
International, Inc.
Reference is hereby made to the Indenture, dated as of April 16,
1997 (the "Indenture"), among Sun World International, Inc., as issuer (the
"Issuer"), the Guarantors and IBJ Schroder Bank & Trust Company, as trustee.
Capitalized terms used but not defined herein shall have the meanings given
to them in the Indenture.
This letter relates to $_______ principal amount of Notes which
are evidenced by one or more Global Notes (CUSIP No. _________) and held
with the Depository in the name of ____________________________ (the
"Holder" or "Transferor"). The Transferor hereby requests a transfer of
such beneficial interest in the Notes to a Person who will take delivery
thereof in the form of an equal principal amount of Notes evidenced by one
or more Certificated Notes (CUSIP No. ___________), which Notes, immediately
after such transfer, are to be delivered to the Transferor at the address
set forth below.
In connection with such request and in respect of the Notes
surrendered to the Trustee herewith for exchange (the "Surrendered Notes"),
the Holder of such Surrendered Notes hereby certifies that:
[CHECK ONE]
____the Surrendered Notes are being transferred to the beneficial
owner of such Notes;
or
____the Surrendered Notes are being transferred pursuant to and in
accordance with Rule 144A under the United States Securities Act
of 1933, as amended (the "Securities Act"), and, accordingly,
the Transferor hereby further certifies that the Surrendered
Notes are being transferred to a Person that the Transferor
reasonably believes is purchasing the Surrendered Notes for its
own account, or for one or more accounts with respect to which
such Person exercises sole investment discretion, and such
Person and each such account is a qualified institutional buyer
within the meaning of Rule 144A, in each case in a transaction
meeting the requirements of Rule 144A;
or
____the Surrendered Notes are being transferred in a transaction
permitted by Rule 144 under the Securities Act;
or
____the Surrendered Notes are being transferred in a transaction
permitted by Rule 904 under the Securities Act;
or
____the Surrendered Notes are being transferred pursuant to an
effective registration statement under the Securities Act;
or
____such transfer is being effected pursuant to an exemption from
the registration requirements of the Securities Act other than
Rule 144A or Rule 144, and the Transferor hereby further
certifies that the Notes are being transferred in compliance
with the transfer restrictions applicable to the Notes and in
accordance with the requirements of the exemption claimed, which
certification is supported by an Opinion of Counsel, provided by
the Transferor or the transferee (a copy of which the Transferor
has attached to this certification) in form reasonably
acceptable to the Issuer and to the Registrar, to the effect
that such transfer is in compliance with the Securities Act;
and the Surrendered Notes are being transferred in compliance with any
applicable blue sky securities laws of any state of the United States.
This certificate and the statements contained herein are made for
your benefit and the benefit of the Issuer and Smith Barney Inc., the
initial purchaser of such Notes being transferred.
__________________________
[Insert Name of Transferor]
By:
Name:
Title:
Dated: _____________, _____
cc: Sun World International, Inc.
P.O. Box 80298
Bakersfield, California 93312
Attention: Chief Financial Officer
CROSS-REFERENCE TABLE*
Trust Indenture
Act Section Indenture Section
310 (a)(1) .. . . . . . . . . . . . . . . . . . . 7.10
(a)(2) .. . . . . . . . . . . . . . . . . . . .7.10
(a)(3) .. . . . . . . . . . . . . . . . . . . . . N.A.
(a)(4) .. . . . . . . . . . . . . . . . . . . . .N.A.
(a)(5) .. .. . . . . . . . . . . . . . . . . . . 7.10
(b) . . . . . . . . . . . . . . . . . . . . . . .7.10
(c) . . . . . . . . . . . . . . . . . . . . . . .N.A.
311 (a) . . . . . . . . . . . . . . . . . . . . . . .7.11
(b) . . . . . . . . . . . . . . . . . . . . . . .7.11
(c) . . . . . . . . . . . . . . . . . . . . . . .N.A.
312 (a) . . . . . . . . . . . . . . . . . . . . . . .2.05
(b) . . . . . . . . . . . . . . . . . . . . . . 11.03
(c) . . . . . . . . . . . . . . . . . . . . . . 11.03
313 (a) . . . . . . . . . . . . . . . . . . . . . . 7.06
(b)(1) . . . . . . . . . . . . . . . . . . . . . 10.03
(b)(2) . . . . . . . . . . . . . . . . . . . . . 7.07
(c) . . . . . . . . . . . . . . . . . . . 7.06; 11.02
(d) . . . . . . . . . . . . . . . . . . . . . . 7.06
314 (a) . . . . . . . . . . . . . . . . . . . 4.03; 11.02
(b) . . . . . . . . . . . . . . . . . . . . . . 10.02
(c)(1) . . . . . . . . . . . . . . . . . . . . . 11.04
(c)(2) . . . . . . . . . . . . . . . . . . . . . 11.04
(c)(3) . . . . . . . . . . . . . . . . . . . . . N.A.
(d) . . . . . . . . . . . . . . . 10.03; 10.04; 10.05
(e) . . . . . . . . . . . . . . . . . . . . . . 11.05
(f) . . . . . . . . . . . . . . . . . . . . . . N.A.
315 (a) . . . . . . . . . . . . . . . . . . . . . . 7.01
(b) . . . . . . . . . . . . . . . . . . . 7.05; 11.02
(c) . . . . . . . . . . . . . . . . . . . . . . 7.01
(d) . . . . . . . . . . . . . . . . . . . . . . 7.01
(e) . . . . . . . . . . . . . . . . . . . . . . 6.11
316 (a)(last sentence) . . . . . . . . . . . . . . . 2.09
(a)(1)(a). . . . . . . . . . . . . . . . . . . . 6.05
(a)(1)(b). . . . . . . . . . . . . . . . . . . . 6.04
(a)(2) . . . . . . . . . . . . . . . . . . . . . N.A.
(b) . . . . . . . . . . . . . . . . . . . . . . 6.07
(c) . . . . . . . . . . . . . . . . . . . . . . 2.12
317 (a)(1) . . . . . . . . . . . . . . . . . . . . . 6.08
(a)(2) . . . . . . . . . . . . . . . . . . . . . 6.09
(b) . . . . . . . . . . . . . . . . . . . . . . 2.04
318 (a) . . . . . . . . . . . . . . . . . . . . . . 11.01
(b) . . . . . . . . . . . . . . . . . . . . . . N.A.
(c) . . . . . . . . . . . . . . . . . . . . . . 11.01
N.A. means not applicable
*This Cross-Reference Table is not part of the Indenture
EXHIBIT 5.1
-----------
April 29, 1997
Cadiz Land Company, Inc.
10535 Foothill Blvd.
Suite 150
Rancho Cucamonga, CA 91730
Re: Registration Statement No. 333-19109 on Form S-1 (the "Registration
Statement")
Ladies and Gentlemen:
Our opinion has been requested in connection with the
Registration Statement filed by Cadiz Land Company, Inc., a
Delaware corporation (the "Company"), with the Securities and
Exchange Commission relating to the offer and sale by certain
security holders of the Company named therein (the "Selling
Security Holders") of a total of 8,782,472 shares (the "Shares") of
Common Stock of the Company, consisting of 683,000 Placement
Shares, 7,368,252 Conversion Shares, 366,220 Dividend Shares,
50,000 Option Shares and 315,000 Warrant Shares, and 315,000
Warrants (as such terms are defined in the Registration Statement).
We have examined such corporate records and other documents and
have made such examinations of law as we have deemed relevant.
Based on and subject to the above, it is our opinion that the
Placement Shares, 53,332 of the Conversion Shares, 199,905 of
the Dividend Shares, and the Options and the Warrants are duly
authorized, legally issued, fully paid and non-assessable, and that
the Option Shares, the Warrant Shares and the balance of the
Conversion Shares and Dividend Shares, when issued as contemplated
under the terms of the agreements and instruments governing their
issuance, will be duly authorized, legally issued, fully paid and
non-assessable.
We hereby consent to the use of this opinion as an Exhibit to the
Registration Statement. This opinion supersedes and replaces our
previous opinion dated December 31, 1996.
We are delivering this opinion to the Company, and no person
other than the Company may rely upon it.
Very truly yours,
/S/ Miller & Holguin
- -----------------------------
MILLER & HOLGUIN
EXHIBIT 21.1
------------
SUBSIDIARIES OF THE COMPANY
Sun World International, Inc.
Rancho Cadiz Mutual Water Company
Southwest Fruit Growers, LP
PSWRI Limited
Pacific Real Estate, Inc.
Pacific Packing, Inc.
EXHIBIT 23.1
-------------
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 (No. 333-19109) of our report dated
March 7, 1997, except for Note 7, which is as of March 31, 1997, relating
to the financial statements of Cadiz Land Company, Inc., which appears in
such Prospectus. We also consent to the application of such report to
the Financial Statement Schedules for the nine months ended December 31, 1996
and the two years ended March 31, 1996 listed under Item 16(b) of this
Registration Statement when such schedules are read in conjunctin with the
financial statements referred to in our report. The audits referred to in
such report also included these schedules. We also consent to the use of
our report dated November 22, 1996, relating to the financial statements of
Sun World International, Inc., which appears in such Prospectus. We also
consent to the references to us under the headings "Experts" and "Selected
Financial Data" in such Prospectus. However, it should be noted that Price
Waterhouse LLP has not prepared or certified such "Selected Financial Data."
/s/ Price Waterhouse LLP
- -----------------------
Los Angeles, California
April 25, 1997
EXHIBIT 23.2
------------
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration
Statement No. 333-19109 of Cadiz Land Company, Inc. of our report
dated September 20, 1996 (which expresses an unqualified opinion
and includes an explanatory paragraph referring to Sun World's
bankruptcy and reorganization) with respect to the consolidated
financial statements of Sun World International, Inc. for the years
ended December 31, 1995 and 1994, appearing in the Prospectus, which
is a part of this Registration Statement, and to the reference to
us under the heading "Experts" in such Prospectus.
/S/ DELOITTE & TOUCHE LLP
Fresno, California
April 25, 1997
